LDA Third Sector Policy Statement

June 2006

Contents

• Introduction
• What do we mean by the Third Sector?
• Rationale for Intervention
• Criteria for Intervention
• How the LDA may work with the Third Sector to address market failure
• Impact on cross-cutting themes
• Summary

Introduction

The London Development Agency (LDA) is one of nine regional development agencies in England. The LDA is the Mayor's agency for sustainable economic development.

The LDA prepares the Mayor's business plan for London and mobilises the support and resources of hundreds of partner organisations to help build a thriving economy for London's people, businesses and communities. The LDA is dedicated to improving sustainability, health and equality of opportunity for Londoners.

• What do we mean by the Third Sector?
• Rationale for Intervention - LDA and the Third Sector
• Criteria for Intervention – LDA and the Third Sector
• How the LDA may work with the Third Sector to address market failure
• Impact on cross-cutting themes
• Summary

What do we mean by the Third Sector?

The Third Sector covers an enormously wide range of organisations and activities. It can, however, be defined as:

• Social enterprise organisations, a business model that reinvests their surplus to further their social purpose.
• Co-operatives and mutuals.
• Very large, formal, 'household name' type charities (such as NSPCC) and the vast majority of charities which are essentially third sector SMEs or micro-enterprises.
• Informal associations such as community groups (which can include, for example, some faith-based organisations).

Given the complexity of the sector, the LDA does not and cannot have a one size fits all approach to working in partnership with and through the sector if it is to deliver economic development and regeneration in London effectively and successfully.

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Rationale for Intervention - LDA and the Third Sector

Both the Mayor's Economic Development Strategy (EDS) and the LDA Corporate Plan recognise the vital contribution of the Third Sector, together with the private and public sectors, to economic development and regeneration in the capital.

The discrete contribution of and partnership working between the public, private and third sectors is a critical factor in the delivery of the EDS objectives. This is enhanced by the leverage that each sector brings to achieving inclusive, healthy and sustainable economic development in the capital.

The Third Sector's contribution to economic development and regeneration in the region is important as a:

• Sector of the economy and a significant employer;
• Strategic advisor and informed participant in the development of regional strategies;
• Managing agent and co-ordinator of partnerships;
• Agent of service design, delivery and appraisal;
• Route to those who are most at risk of economic and social exclusion and who have most to gain from regeneration of our capital.

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Criteria for Intervention – LDA and the Third Sector

The criteria for intervention is determined by the LDA's economic development and regeneration remit as legislated for under the GLA Act (1999) and set out in the LDA Corporate Plan.

London's Third Sector comprises:

• 26,634 registered charities generating £18.7 billion in 2005 (Guidestar 2006)
• Of the £18.7 billion generated by charities in London, 45% was generated by sales; 36% from gifts and donations; 6.9% from investment and 11.2% from other sources.
• 761 start-up charities in 2005 (Guidestar 2006)
• Employing over 249,304 people, 6.4% of London's working population – and 38% of the total charity employees in England and Wales. (Guidestar 2006)
• It is estimated that 11,783 charities work with children and young people; 6,012 with the Elderly; 3,940 with disabled people.
• 6,130 charities work on culture and leisure activities; 7,185 on economic well-being; 12,934 on education and lifelong learning; 2,250 on environment; 6,289 on health and well-being; and 1,704 on housing.
• Over 60,000 voluntary and community groups.
• Approximately 5000 social businesses (London Social Enterprise Strategy, 2001)
• In Newham, Hackney and Tower Hamlets alone, 3000 voluntary and communities organisations have leveraged £585 million per year into disadvantaged communities into these three boroughs. (East London Voluntary Sector Alliance, 2004)

Given the importance of the sector, not only as a sector of the economy and significant employer, but also as a service deliverer and route to those most at risk of social and economic exclusion, the LDA is working with the sector to deliver economic development and regeneration across the spectrum of activities that lie within our remit. 

This is an active recognition of the important role the sector in the delivery of the objectives of the Mayor's Economic Development Strategy and the LDA Corporate Plan, together with the private and public sectors.

The LDA's role is to operate primarily at a regional and strategic level. The LDA's approach is that of a broker not a banker. The LDA is not therefore a funding agency, it is an agency that works with others to deliver on economic development and regeneration objectives. In this role, the LDA brokers delivery and levers in resource to achieve our Corporate Plan objectives through effective partnership working with and across the private, public and third sectors.

The LDA is focused on achieving deliverable economic development and regeneration outcomes and to harness the energy and resources of public, third and private sector partners and individuals, businesses and communities to increase regional economic productivity in the capital.

The LDA commissions where we identify there is market failure, where our intervention will provide strategic added value to the delivery of economic prosperity, not duplicating what is properly the role of other funders and partners. The LDA is focused on delivering economic outcomes that will have a social impact, recognising that this is essential to achieve healthy, inclusive, sustainable economic development, growing the enterprise and employment base in London.

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How the LDA may work with the Third Sector to address market failure

Business

The Third Sector is a sector of the economy and faces similar issues to those of private sector Small and Medium sized Enterprises (SMEs) (e.g. need for high quality, accessible business support, information and advice on access to finance and funding etc.). However, different forms of finance, funding and legal structures and the social purpose and public benefit ethos mean that the Sector requires access to appropriate specialist support, where relevant.

The Third Sector's business development needs are met by a number of agencies in London, including, for example, funding of local Councils for Voluntary Service and other local, sub-regional and regional infrastructure organizations. 

There are a number of public sector agencies that are invest in business development or capacity-building of the Third Sector and these include: local authorities; learning and skills councils; public sector health agencies (e.g. PCTs); Government Office for London and so on.

The LDA has a role where market failure is identified to ensure that, where appropriate, specialist programmes are developed with our stakeholders (including others who fund Third Sector infrastructure) to address areas of market failure where there is a strategic and business case fit with the LDA's role (e.g. on access to specialist business support; supply chain; procurement development; access to finance). 

This will ensure that business support, appropriate finance and funding, and procurement opportunities are opened up to SME Third as well as private sector suppliers and promote quality and choice in the provision of public services and in the marketplace more generally.

Skills and Employment

The sector is a significant employer in the region. In addition, it is often uniquely placed to reach out to those who are most at risk of social and economic exclusion and who have most to gain from economic prosperity and the building of social and economic capital in the region (e.g. through the role of Third Sector training providers).

There are a number of agencies involved in delivering workforce development of the Third Sector in the region, and who also have the responsibility for investing in Third Sector workforce development, in particular, the Learning and Skills Councils.

Within our regional strategic role and economic development remit, the LDA has a twofold role. One is to encourage Third Sector involvement in the development of the London Regional Skills Partnership, or its successor bodies and advisory groups, through the inclusion of appropriate representation from the Third Sector at a regional strategic level to ensure that Third Sector workforce development requirements are taken into account in strategic development. 

The other is to encourage the inclusion of the Third Sector as delivery agents in skills and employability focused programmes and areas of work, for example, the basic skills agenda, intermediate labour market, and childcare (as a major barrier to accessing employment and skills training). This is particularly relevant with regard to the sector's role as being able to reach out to those who are most at risk of social and economic exclusion, where these are within the remit of a range of public sector agencies, e.g. Learning and Skills Councils; Job Centre Plus; LDA targeted programmes to address market failure in this area.

Regeneration and Infrastructure Development

The sector has a particular ability to reach out to those who are most at risk of social and economic exclusion and who have most to gain from economic prosperity and the building of social and economic capital in the region.

There are areas where the Third Sector can add value to the delivery of LDA regeneration and development objectives. The Third Sector has a particular role in delivering on cleaner, greener, and safer communities. The focus for this is particularly the development of sustainable community centres and assets which can stimulate enterprise and provide effective public service delivery at a grassroots level, and through development of their own enterprise route be sustainable in the long-term. There are a number of agencies involved in delivering on this agenda, particularly Local Authorities, Local Strategic Partnerships and the emerging Local Area Agreements.

With our regional strategic role and economic development remit, the LDA role is that of ensuring that, where appropriate, we promote the development of community asset-based regeneration as part of a range of interventions that can contribute to the creation of sustainable communities.

The LDA will also encourage, where appropriate, the engagement of the Third Sector in major regeneration and physical infrastructure projects in order to ensure that the views of communities and communities of interest are reflected at a strategic level (e.g. through representation on relevant sub-regional and regional partnerships).

The Third Sector engages with a wide range of public sector bodies and the LDA will seek not to duplicate this engagement, using existing structures wherever possible (e.g. through Local Strategic Partnerships) in engaging with the sector, ensuring that local views feed into sub-regional and regional development.

Process

The LDA is committed to implementing the undertakings of the Compact with the sector ('Working Together: a Compact on relations between the Mayor, Transport for London, the London Development Agency and London's Voluntary and Community Sector' April 2003).

The Agency recognises that the sector can, because of differences in legal form and sources of funding and finance, often face particular funding and cash flow issues.

Therefore, the LDA will:

• Seek to implement HM Treasury 'Improving Financial Relationships with the Third Sector: Guidance to Funders and Purchasers' (and relevant updated Guidance to Funders as and when this is issued by HM Treasury), with particular reference to full cost recovery and payment in advance rather than arrears, whilst recognising that this is also a key issue for other public sector bodies and leaders within the sector to take forward.
• Seek to ensure that the sector has access to procurement opportunities (through the inclusion of key recommendations from the relevant procurement strategies produced by the Cabinet Office, HM Treasury et al.), in line with the LDA’s investment policies and procedures.
• Encourage the continued development and growth of Social Enterprise, entirely in keeping with our response on the enterprise question, as one solution to long term financial sustainability.

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Impact on cross-cutting themes

Equality

The nature of the third sector, and its focus on communities of interest and social inclusion groups who particularly engage with the third sector and at a community level, is such that it will make a considerable and positive contribution to equality groups.

The LDA recognises the sector as having a specific ability to reach out to those who are most disadvantaged and who have most to gain from successful economic development.

The LDA's engagement with the sector will promote internal as well as external learning at local, regional and national government level of how to deliver on LDA and equality and inclusion policy objectives successfully. The result will be to the benefit of private, public and third sector agencies at whatever level which are engaging or should be engaging in economic development and regeneration in the capital.

Health

One of the key aspects of the Third Sector is its ability to add value to economic development and regeneration. The third sector is acknowledged as having a 'comparative advantage' in the delivery of public services, providing services that are flexible, responsive and accessible for disadvantaged local people and under-served communities.

Given the correlation between the lack of access to services and/or choice in service provision and culturally sensitive service delivery and poor health, the sector has a key role in contributing towards improving the health of Londoners, including children who are over-represented in poverty and multiple deprivation indicates with attendant poor health consequences.

Sustainability

The Third Sector provides a focus for economic, social and environmental sustainability as a key delivery partner in economic development and regeneration.

By promoting how the LDA and other local, regional and national government agencies can improve the way that they work with the sector, which has a particular, though not exclusive, role in delivering in key sectors (health and social care; childcare; creative and cultural industries; environment and the green economy etc.) effective delivery with regard to public and community services, equality, health, sustainability and community cohesion will be enhanced.

The sector can play a key role in enhancing the long-term sustainability of economic growth, contributing to sustainable development in London and providing knowledge transfer to have positive impacts in other regions.

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Summary

In order to ensure that the LDA makes the best possible use of public funds granted to the Agency to achieve its economic development and regeneration objectives:

• The LDA will not invest in the Third Sector where there is not demonstrable evidence of delivery on LDA objectives in terms of targets (outputs) and outcomes that meet with the criteria as set out in line with the LDA's investment policies and procedures and commissioning documents.
• The LDA will not duplicate or replace investment in the Third Sector where this either (a) properly lies within the role and remit of other agencies; and/or (b) falls outside delivery of LDA targets (outputs) and outcomes.
• The LDA is committed to working with the Third Sector, as well as the public and private sectors, in the preparation of the Mayor's Economic Development Strategy and to consulting with the Sector at an appropriate regional strategic level to ensure that the views of the Third Sector are reflected in the preparation of the Mayor's EDS.
• The LDA is committed to working with the Third Sector, as well as the public and private sectors, in the delivery of the LDA Corporate Plan, where the Third Sector can provide demonstrable evidence of how it will deliver LDA targets (outputs) and outcomes.
• The LDA is committed to engaging with relevant regional strategic bodies which represent and reflect the views of Third Sector organizations in the capital, and to consulting with them where appropriate on the development of strategies (e.g. the Mayor's EDS, the LDA Corporate Plan).

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