local money multiplier (lm3)
DESCRIPTION
the local money multiplier taken from a report by the New Economics Foundation, The Money TrailTRANSCRIPT
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Local Money Multiplier And why local businesses matter far more than you think
Source: The Money Trail>>>
£
£
£
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The local multiplier effect
• Looks at the impact of money that is spent and re-spent within a local economy
• Demonstrates that the more money circulates a local economy, the stronger that economy is in terms of jobs, wealth and wellbeing
• Both the New Economics Foundation and the Centre for Local Economic Studies have worked with local communities and public agencies to demonstrate the effectiveness of this approach
£
£
£
£
£ Local
economy
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Practical example: Comparison between hotels and B&Bs located in Tayside • This compares not just the
initial income from hotels and B&B’s but what happens after: – How the money is re-spent
and how much of it stays in a locality vs how much leaves
– It then adds up both the initial income and the money re-spent over four rounds to give a total figure
Initial income
Re-spend over 4 rounds
Total money spent
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Tay hotels bring in 70% more income
£100,000.00
£170,000.00
£-
£20,000.00
£40,000.00
£60,000.00
£80,000.00
£100,000.00
£120,000.00
£140,000.00
£160,000.00
£180,000.00
Tay B&B's Hotels
Initial Income
A ‘no brainer’ isn’t it? Chain hotels have got
to be good for Tay!
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£(10,000.00)
£10,000.00
£30,000.00
£50,000.00
£70,000.00
£90,000.00
£110,000.00
£130,000.00
£150,000.00
£170,000.00
Initial Income Re-spend 1 Re-spend 2 Re-spend 3 Re-spend 4 Re-spend 5
Hotels
Initial income of 170,000 70% higher than for B&B’s
Only 20% spent locally
Monery spent and re-spent locally is looked at over 5 cycles+ initial income
Total money spend and re-spent comes to £235,875
But actually most of this money goes straight out to Head Offices
and external suppliers. Only 20% of that initial income is re-
spent in Tay
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£100,000.00
£80,000.00
£40,000.00
£20,000.00
£10,000.00 £5,000.00
£(10,000.00)
£10,000.00
£30,000.00
£50,000.00
£70,000.00
£90,000.00
£110,000.00
£130,000.00
£150,000.00
£170,000.00
Initial Income Re-spend 1 Re-spend 2 Re-spend 3 Re-spend 4 Re-spend 5
Tay B&B's
Tay B&B’s re-spent 80% of Gross income on local staff, Linen, local produce and services
Gross income/ Sales
Half of 80,000
Cycle repeats
Total money spend and re-spent comes to £255,000
While the local B&B’s bring in less
initial income More of it is re-spent in
the local economy – local staff, local suppliers
and local owners spending their profits
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The result is surprising
£255,000 £235,875
Tay B&B's Hotels
Totals More money stays and circulates in the local economy through Business generated by local B&B’s than hotels.
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£
£
£
£
£
What applies to B&B’s applies to other local businesses
They keep jobs and wealth in the local community
£ Chain Stores don’t!
Source: The Money Trail>>>>>
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Half of the turnover of an independent local
retailer goes back into the local economy
50% Leakage
50% goes back into Local economy
supplies and services outside the local area
£ Tu
rno
ver Local businesses often
have strong local supply chains, spend their profits
locally and employ local staff
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…while just 5% of the turnover of a supermarket does
• Supplies
• VAT
• Rent
• Profit
• Labour
• Shareholders
Re-spend in local
community 5%
Leakage 95%
Source: Federation of Small Businesses Keep Trade Local>>>
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Local retailer: 50% of money stays locally
£1
,00
0
£500 re-spent locally
£250 re-spent locally
£125 re-spent locally
£1,000 sales
After four rounds, the initial income + re-spend amounts to: £1,875
£500 leaves local economy
£250 leaves local economy £125 leaves
local economy
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Supermarket: 5% of money stays locally
£1
,00
0
£50 re-spent locally
£2.50 re-spent locally
£1,000 sales
After three rounds, the initial income + re-spend amounts to: £1,052.50
£950 leaves local economy
£47.50 leaves local economy