What financial standing options are under consideration for restricted O-licence holders?

Emma Shone
July 26, 2018

The Office of the Traffic Commissioner (OTC) has begun a consultation into whether the levels of financial standing for restricted O-licence holders should be changed for the first time since 2004.

The consultation, which will close next month, is asking industry stakeholders whether they would favour an increase in financial levels, they should remain the same or they should be reduced. Restricted licence holders are required to demonstrate access to less money than standard O-licence holders have to show.

Financial standing levels for standard licence holders are set by the EU each year and converted into sterling on the first trading day of October. However, financial levels for own-account licences are set by the OTC, which has held off increasing the rates since before the recession in what it said was a conscious effort not to jeopardise businesses in financially turbulent times.

The OTC is now concerned that after years of inflation in the cost of running an HGV, the current financial levels for restricted licences would not be enough to cover vehicle maintenance costs. Restricted licence holders must be able to demonstrate they have £3,100 available for the first vehicle and £1,700 for every other vehicle.

This is significantly lower than the £7,950 and £4,400 that standard national and international licence holders currently have to demonstrate. In 2016/17 just more than half of UK goods operators (38,132) held restricted O-licences, with 27,140 standard national and 8,186 international licences also issued.

In the consultation document, the OTC sets out seven options. One is to leave financial levels where they are. However, the consultation document suggests that while this would prevent operators being negatively affected by a change in the levels, it would not reflect the actual cost of repairing and maintaining an HGV.

Alternative options

The document also puts reducing the levels forward as an option but points out that, while this would mean fewer licences were lost on financial level grounds, this could pose a risk to road safety. The remaining five options outline variations of an increase to the financial levels, calculated using consumer price index (CPI) inflation rates from different years.

If the financial levels were to increase in-line with all of the inflation rate rises since they last changed in 2004, operators would see a hefty 37% rise in the required funds. The cost of the first vehicle would rise from £3,100 to £4,269, with the cost for each additional vehicle jumping from £1,700 to £2,341.

This, the consultation document concedes, could well have a negative effect on those operators affected by the change. Two alternative proposed increases to restricted licence financial levels have been calculated according to inflation rates since 2013 and 2014, which would both equate to a 7.4% increase in the required funds.

On these options, which would increase the requirements to £3,329 for a first vehicle and £1,826 for subsequent vehicles, the OTC said that while it would have a smaller negative effect on operators, it may not be enough of an increase to meet the current cost of maintaining an HGV.

The sixth option is an increase calculated using figures from the RHA’s annual haulage cost movement survey. The association collects data from its members every year and uses it to record the costs involved in running a road haulage business.

The information can be used to track an estimated rise in how much money an own-account operator would need to repair or maintain its fleet. Using the rate of growth in costs from this data since 2011, the OTC’s consultation says this option would result in a 27% increase in financial levels, rising to £3,937 for a first vehicle and £1,826 for subsequent trucks.

This option, the document suggests, “would increase the requirement in-line with anticipated costs since 2011 but would not have the negative effect felt by other measures”. The final option outlined in the consultation would be to standardise the financial requirements for restricted licence holders with the EU’s levels of financial standing for standard licence holders.

The final option

It clarifies that, because the financial standing levels are set in law, the rates for restricted licence holders would have to be raised to and maintained at the same level. Based on 2018’s financial standing levels, standardisation would represent a 156% increase in the resource required for one vehicle and a 158% rise for subsequent vehicles.

While standardisation would in itself be a benefit, the document suggests there is a chance it could encourage more take up of standard O-licences instead of own account. The document says standardisation, “may potentially encourage some restricted operators to maximise their returns on their vehicles by obtaining a standard licence as a result of one of the benefits of holding a restricted licence being removed”.

However, it adds that some clarification would be required around the legislative differences between financial standing and sufficient financial resources. The OTC has asked the industry to let it know which of the seven options it would prefer, and what effect it would have on business if financial levels were to increase.

The consultation also asks whether stakeholders agree that traffic commissioners should reconsider financial levels for restricted licence holders every five years and, if not, what they believe a suitable review period would be. The consultation is open until 31 August.

How to participate

The consultation can be found at  gov.uk/government/consultations/restrictedlicence-holders-level-of-financial-resources. Responses can be sent by email to sstcconsultations@otc.gov.uk, or by post to Andrew Wilkinson, Traffic Commissioners’ Corporate Office, Hillcrest House, 386 Harehills Lane, Leeds LS9 6NF.

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