The government is to give its "wholehearted" backing to a bid to host the Olympic Games and the Paralympics in London in 2012, Culture, Media and Sport Secretary Tessa Jowell told MPs today.

The move will see a £2.3 billion funding deal to support the bid. Part of the funding will be supplied through a £20 rise in council tax levies across the capital and investment from the National Lottery.

The decision was made following an appraisal of the costs and benefits of bidding for the world's biggest sporting event.

The Secretary of State said that the bid would be a huge stimulus for elite sport, but would also rest on a growing commitment to grassroots sport.

"It will be central to our efforts to increase physical activity, and identify and develop talent," she said.

"We are going all out to win. Silver is nowhere in this race. The whole Government has backed this bid. There will be some stiff opposition, but we have a great case and everyone, from the Prime Minister down, will be working hard to make it."

The Tory Party has thrown its weight behind the announcement and shadow sports secretary John Whittingdale said that, if successful, it would bring "incalculable benefits to this country in terms of investment, tourism, regeneration and most of all British sport".

Mr Whittingdale urged the appointment of a senior minister to co-ordinate the operation, and appealed for the appointment of a high profile figure to "tour the world and make the case for London".

However, the Opposition minister challenged the London-wide rise in Council Tax charges, emphasising the need for major infrastructure improvements in the capital.

He added: "It would be unacceptable for the Olympics to be used as an excuse for further tax increases on either London's hard-pressed businesses or its residents, and that any additional liability must lie with the Treasury."

The International Olympic Committee will announce its decision on which city will host the event in 2005.

London has previously hosted two Olympic Games – in 1908 and 1948. On both occasions, London was asked to host. The city has never previously made a bid for the Olympics.

(GMcG)