It's not just what the LDA did but what it failed to do

At an Evening Standard debate during the mayoral election campaign, I was approached by a woman whose charity provides breakfasts for London school kids. For many of them, she said, it is the only hot meal they get.

Those stories sound like caricatures: the shoeless children, the kids who never eat proper meals. But they are not. They are true, if extreme, reflections of the fact that London is one of the most unequal cities in the western world.

The scandals that prompted the Wheatcroft investigation have been about what the LDA did, but the bigger scandal is what it has failed to do. As the property-owning classes have cashed in, the professions have boomed and the super-rich have frolicked, at least a million Londoners have missed the party. Literally within sight of the twin economic powerhouses of the City and Canary Wharf, the borough of Tower Hamlets has the lowest employment rate in Britain. Fifty per cent of inner-London children grow up in poverty.

London's dramatic deprivation is a major factor in many of the other problems we face, like knife crime. The LDA is "the Mayor's agency for business and jobs". It should be spending its £700 million a year spreading employment to the workless deserts of Tower Hamlets and everywhere else the market alone has failed to provide.

Yet even the LDA itself, in its January 2008 "economic development snapshot", published when Ken was still in charge, admits that "the employment rates of the most disadvantaged groups do not appear to have improved significantly ... over the economic cycle to date" and says that the agency's performance at reducing barriers to employment has been "poor".

Now, following the Lee Jasper affair and the Wheatcroft report, the LDA has the chance to turn the corner, find itself proper work and become a useful member of society. This is what it needs to do.

First, it needs to focus rigidly on its declared core purpose of stimulating enterprise, prosperity and jobs. Under Livingstone, the LDA went on safari, splashing the cash across a whole range of unrelated policy areas to purchase political support. In one random example, £658,000 was paid to a company called Mezzanine 2 in order to allow selected Ken-friendly charities to occupy prime space in a glossy office block at 1 London Bridge. But what possible economic benefit could there have been to London in subsidising charity workers to live like investment bankers?

Second, it needs to abandon its often perverse racial and gender quotas. Extraordinarily, the LDA's current business plan requires that at least 50 per cent of all business start-up grants be paid to ethnic minorities and at least 50 per cent to women. But some ethnic communities, such as Indians, are rich and perfectly capable of financing their own start-ups; while white workingclass men, many of them unarguably in need of economic empowerment, are all but excluded from LDA largesse.

This system also lay behind several of the dubious ethnic-minority moneypits of which the LDA seemed so fond. Cynical black "grant-farmers", some of them known to Mr Jasper, exploited the agency's desperation to fulfil its racial targets, realising that their proposals would not be closely scrutinised. Among the files of one such project, the Green Badge Taxi School, police found a whole series of template grant applications on dozens of different letterheads with the same cut-and-pasted buzz phrases about "inclusion" and "diversity".

The LDA must rebuild its links with real community groups which do real work and which often face severe financial hardship. Grants should be awarded only on the basis of the viability of the proposal and the need of the proposer. Ethnic minorities would still benefit disproportionately, because they are disproportionately in need.

Third, the LDA needs to measure its success by the results it achieves, rather than the amount it spends. As Wheatcroft found, the agency's officials sincerely believed that merely to spend money was to do good - and they shovelled it out without any serious attempt to connect it to real outputs or even, in some cases, real companies. Another random example from my files: a grant of £10,000 was given to a company called Compass West, for a project entitled "thermo-graphic imaging of the drink straw". There is not a company of this name at Companies House, and there never has been. There are dozens of cases like this.

Fourth, and most importantly, the LDA needs to be properly governed. Its management was incapable of even the simplest book-keeping task, such as checking that grant recipients were paid the amounts actually agreed (one of Jasper's cronies billed £51,000 more than the agreed amount, and the LDA simply handed it over).

One of the most extraordinary reactions to Wheatcroft was from the Labour Assembly member, and LDA deputy chair, John Biggs, who said that he was "proud of the board's achievement". The LDA board, Biggs included, has been asleep at the switch, and if they had any decency they would all pay back their salaries.

Yet Livingstone's betrayal of London's poor, and of the LDA's core purpose, should not be allowed to obscure the fact that there is a real need for the job it ought to be doing. The worst thing that could happen now is for the Tories to use the mess as an excuse to pull the plug.

You can see why they might: there can't be too many Tory votes in the relief of poverty. But, privately, Boris Johnson has come to talk about deprivation as one of London's central problems, underlying a great deal that the average Tory voter does care about. Hitherto, there has been an assumption that only Labour can help the disadvantaged. Well, Labour has had its chance. Rather as it took a Republican president to start diplomacy with China, could it be a Tory Mayor that finally does something for the London underclass?