London had beaten off competition from Edinburgh, Manchester and German regions to stage the Grand Depart, but Leon Daniels, managing director of surface transport for London, has told the BBC that lack of funding was the reason behind the late withdrawal.
"To ensure value for money we must make difficult choices," said Daniels.
"We have always said that the return of the Tour was subject to funding."
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The French company Amaury Sport Organisation, which owns the race, are apparently unhappy with the decision.
London would have provided funds for staging the Tour's opening stages having previously staged the Grand Depart in 2007 and the finish of the Tour's third stage last year.
The first two stages of last year's Tour were hosted by Yorkshire which attracted four million spectators and apparently boosted the economy by £100m.
The 2017 Grand Depart is now set to be held in Germany for the first time since 2005.
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