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October 04 2017
By Mel Holley

Mel is the Editor at routeONE magazine. He has more than 30 years’ experience in road and rail transport journalism.


Set financial standing in pounds, call

       

The industry has been spared a further rise in the amount of financial standing required for operators to continue trading next January by a matter of weeks, thanks to a bounce in the strength of the pound in September.

But the Freight Transport Association (FTA) says the UK should be setting its own rate - or even completely review the financial standing system against which operators are deemed to be operationally viable, after Brexit on 29 March 2019.

Says James Firth, FTA's Head of Licensing Policy: “Between 2012 and 2016, the figure required has fluctuated by almost £2,000 for the first vehicle, simply based on the changes in the exchange rate for Euros .

“This situation needs urgent attention to ensure that stability for business expenditure can be established moving forwards.”

He adds: "Transition period or not, it would be absurd if the domestic industry continued to be pegged to a financial standing rate in Euros after Brexit.

“This means the UK needs to consult with industry, or select a level at which business is to be judged, to ensure that operators are able to plan efficiently and manage cash flows accordingly.”

For standard operating licence holders, European law currently requires reserves of €9,000 for the first vehicle and €5,000 for each subsequent vehicle.

For EU countries which do not use the Euro, the rate is reassessed against the exchange rate of the local currency every October. For non-Eurozone countries, this can create fluctuations year to year.

“Shouldn't the government be taking this opportunity to reassess what financial standing is for, how it is determined and base it on values fixed in Sterling?

He adds: “What are the greater financial risks to the hire and reward sector that the government perceives justify continued rates so substantially elevated above those in the own-account (Restricted Licences) sector - which, of course, takes in almost every type of industry and sector across the UK economy?”

The requirements for financial standing seek to ensure that O-Licence holders have sufficient funds to work day-to-day, and sufficient reserves to prevent cuts in vehicle maintenance to make cost savings.

The Office of the Traffic Commissioner is expected to announce the official rates for financial standing in 2018 in the coming weeks.

It appears, however, that the exchange rate on 2 October 2017 is almost exactly the same as it was on the equivalent date last year, so no significant change is expected this year.

In 2011 the European rules were changed so that the exchange rate was assessed annually instead of every five years as had previously been the case. This was intended to counter larger fluctuations which could accrue in five years resulting in sudden, large changes in rates.

European Law does not cover own-account operations (Restricted O-Licences), so the financial standing rates for restricted licence holders are set by the UK Government in Sterling and have remained unchanged at £3,100 for the first vehicle and £1,700 for subsequent vehicles for some years.

Financial standing is not a sum which must be paid, rather an amount that any O-Licence holder must be able to demonstrate to the Traffic Commissioner that they have reasonably immediate access to over a sustained and constant period.

The most straightforward way to demonstrate financial standing is evidence of cash at the bank over a sustained period (last three months), however the Senior Traffic Commissioner's Guidance and Directions document outlines other allowable mechanisms for demonstrating financial standing.



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