Proposal to introduce Vehicle Identity Check (VIC) Scheme

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Note: This document has been prepared to assist in the assessment of the proposed new legislation. The figures contained in it are based on estimates provided by industry and other interested parties.

Purpose and Intended Effect of the Measure

Issue

1. This Regulatory Impact Assessment deals with a proposal to introduce a compulsory identity check of any vehicle (VIC) which has been 'written-off' as salvage by an insurer - generally following severe accident damage - and which someone subsequently seeks, after its repair, to put back on the road.

2. It is proposed that the enabling legislation will be drafted so that VIC could also be applied: either to a vehicle which had been written-off by an insurer; or, to a vehicle which had been 'scrapped' by its owner for whatever reason. The legislation will be drafted in broad terms so that it would be possible to extend the scheme to all classes of vehicle including trailers.

Objective

3. The main objective - in conjunction with new measures to introduce regulation of the vehicle salvage industry and changes to vehicle registration and licensing procedures - is to help combat vehicle crime. In particular, to help prevent criminals from swapping the identity of a vehicle they have stolen with that of a written-off or scrapped vehicle (the illegal practice known as vehicle 'ringing'). The incentive for the criminal arises if he can obtain a low-value accident-damaged or scrapped vehicle and subsequently sell a similar vehicle he has stolen to an unsuspecting purchaser at a much higher price.

Written-off Vehicles

4. At present vehicles written-off by an insurer are subject to a voluntary Code of Practice agreed between the insurance industry and salvage dealers (the Code). Under the terms of the Code, vehicle salvage is classified in various categories, generally depending on the extent of damage. Categories A and B are generally so seriously damaged that they should never be returned to the road. Category C applies where the salvage is repairable but the repair costs exceed the pre-accident value. Category D salvage is repairable though the vehicle is still written-off by the insurer in order to minimise overheads during the repair period, for example.

5. Again under the terms of the Code, the appropriate sections of the vehicle registration document (V5) for the vehicle have to be returned to the Driver and Vehicle Licensing Agency (DVLA) for all salvage falling within Categories A-C. This enables DVLA to keep a track of the fate of the vehicles concerned.

6. In addition, where a vehicle insurer makes a total loss payment in respect of a written-off vehicle, the insurer also sends a form (V23)[1] to DVLA to alert them to this fact. This enables DVLA to put a 'special interest marker' on the vehicle record. In turn, to notify the police where someone attempts either to obtain a duplicate registration document (in the case of a Category A or B vehicle) or to re-licence (in the case of Category C) such a vehicle. The reason for doing so is in view of the risk that vehicle ringing might have taken place (ie: the vehicle for which the application has been made is a stolen vehicle but with the identity of a Category A-C written-off vehicle). Consequently the police have the opportunity to investigate the case if they have a particular interest in the vehicle and if they have the resources available to do so.

7. Under VIC, in any case where someone seeks to obtain a V5 from DVLA and/or to re-licence the vehicle, they will be advised firstly to submit their vehicle for a VIC inspection (in its repaired state). Provided this inspection confirms that the subject vehicle is the original, a VIC certificate will be issued[2] a V5 will be issued to the [3]keeper and the vehicle can be re-licensed[4].

8. In theory, there should be no real need for VIC to apply to Category A and B salvage because it is generally not economically possible to repair such vehicles safely (the Code requires that Category A vehicles are crushed and Category B vehicles are broken for spare parts). Nevertheless, on occasion, vehicles which have been assigned a Category A or B classification do reappear on the road. It is understood that the reason for this is generally either due to 'administrative error' in classification, or, that experts discover that economic and safe repair is possible, following closer examination of the damaged vehicle. Consequently VIC will, in principle, need to be applied to all Category A-C salvage.

9. Again in theory, VIC might not need to apply to Category D salvage because these vehicles are generally repairable; the value of the salvage is consequently likely to be greater; and, consequently, the vehicle may not generally be of such great interest to criminals for the purpose of ringing. Nevertheless, unless Category D is included in the scheme there is a real risk that criminals will simply turn their attention to this Category once their interest in Categories A-C is deterred as a result of the introduction of VIC. The proposal is therefore to provide for VIC to apply to any vehicle which does not have a V5 registration document and which has been written-off or 'scrapped' by an insurer for any reason.

10. It is proposed to bring Category D vehicles within the scope of VIC, in due course, by amending the terms of the Code to ensure that vehicle insurers also destroy the appropriate sections of form V5 in the case of Category D salvage. (The Association of British Insurers (ABI) has already indicated to us that there will be no problem in doing this).

'Self-insured' vehicles

11. Vehicles written-off by vehicle insurers under the provisions of the Code are usually comprehensively insured by their owner/operators (which is why they are the subject of total loss payments by insurers). Generally speaking vehicles which are comprehensively insured are the higher value, more recently registered vehicles. Older vehicles tend not to be comprehensively insured by their owner/operators because if they are written-off due to accident damage the total loss payment by an insurer will only reflect the market value of a similarly aged vehicle (so a disproportionately high comprehensive insurance premium is generally not economically worthwhile for older 6-8 year plus vehicles). Older vehicles are therefore generally insured either against third party risks only, or, more commonly against third party fire and theft risks. However, there is a group of 'more recently registered vehicles' (ie: high value vehicles) which are only insured against third party risks and these are commonly known as 'self-insured' vehicles[5].

12. Vehicles which are 'self-insured' are generally run by large 'fleet operators' (ie: operators who own and operate perhaps 250 plus vehicles[6] and can therefore afford themselves to bear the loss of vehicles which are accident-damaged, as opposed to recovering the loss from an insurer under the terms of a more expensive comprehensive insurance policy). The average age of such vehicles is generally quite low and so they are likely to be of particular interest to criminals involved in ringing high value recently registered vehicles[7]. Consequently, it is intended that vehicles which are written-off by self-insurers should also fall within the scope of the proposed VIC inspection scheme.

13. A number of self-insured operators[8] also work to the Code and so vehicles written-off by these operators will automatically fall within the scope of the proposed VIC inspection scheme. It is understood that other operators who self-insure tend to dispose of 'written-off' vehicles in a responsible way in order to protect their shareholders from the stigma of their company being associated with ringing crime[9]. It is intended that the scope of the enabling legislation will be sufficiently wide so as to ensure that all of these vehicles will be 'captured' under VIC. On the face of it there are two possible routes to capturing this group of vehicles:

  • a requirement could be introduced to make it a requirement to return form V5 to DVLA in any case where a vehicle is sold to a scrap/salvage dealer; or,
  • it might be possible to introduce a specific requirement for self-insured operators to return form V5 to DVLA in any case where a vehicle is sold on because the repair of accident-damage is judged not to be cost-effective.

Scrapped vehicles

14. In addition to vehicles covered by the Code it is a fact that many vehicles are 'scrapped' by their owners each year. Vehicles may be scrapped either due to accident damage (where the owner does not have the benefit of comprehensive insurance and either cannot or decides not to effect repairs) or because the vehicle has developed defects and the owner decides that it is not worth repairing.

15. It would also be possible to bring these vehicles into the scope of the VIC scheme. This could be achieved if, for example, their owners were required to notify DVLA of the fact that they had sold their vehicle to a scrap/salvage dealer (by making an amendment to the Road Vehicles (Registration and Licensing) Regulations 1971. They would also have to be required either to destroy their vehicle registration documents or to return them to DVLA.

16. Arguably the steps described in the preceding paragraph might be necessary in order to prevent criminals from turning their attention away from 'insurance write-offs' to 'privately written-off' vehicles. By ensuring that registration documents for such vehicles were not transferred to the new owner/keeper they would automatically be 'captured' by the VIC scheme. However, the consensus of opinion among consultees is that such vehicles are generally of lower value and are unlikely to attract the attention of criminals involved in ringing crime. In consequence it is not the intention at the present time to include such vehicles within the scope of the VIC scheme. However, it is recommended that the scope of the enabling legislation should be drawn sufficiently widely so that this group of vehicles could be included at a later date by making appropriate changes to secondary legislation[10] if significant ringing crime were to be subsequently detected and linked to this group of vehicles.

In all cases

17. In all cases the objective is helping to deter criminal activity. The VIC scheme will be effective because the criminal will not be able so easily to sell on a ringed vehicle to an unsuspecting purchaser (since he will not have the registration document for it). Equally, he will not be able to make it look 'genuine' by licensing it (since it will not be possible in future to re-licence a vehicle without either the vehicle registration document (form V5) or the vehicle excise licence renewal notice (form V11).

Changes to registration and licensing arrangements

18. As indicated in footnotes 3 and 4, and also in the text above, the successful implementation of VIC is dependent on two associated changes to the current arrangements concerning the registration and licensing of vehicles. Both of these changes have the full support of the Vehicle Crime Reduction Action Team (see footnote 9).

19. As explained in footnote 3, it is proposed that it will not, in future, be lawful for anyone to transfer a vehicle to a purchaser without the registration document for the vehicle (form V5). This change can be implemented by making a minor change to secondary legislation. The purpose of making this change is to try to prevent criminals from selling on either stolen or ringed vehicles - for which they will generally have no registration document. This change will be a deterrent in itself. However, an additional deterrent will arise as a result of the introduction of the VIC scheme because, if a criminal chose to apply for a duplicate registration document for a ringed vehicle, he would know that he would firstly have to obtain a VIC certificate for the vehicle and thereby risk having his crime detected. It is not, however, proposed to require all applicants for duplicate registration documents to obtain a VIC certificate - a VIC certificate would only be required in those cases where a vehicle was being returned to the road which had previously been in the care of a salvage or scrap dealer. In other cases, for example, where a document had simply been lost or mislaid by the registered keeper, all that would be required in order to obtain a duplicate would be proof of identity (probably in the form of a passport).

20. As explained in footnote 4, it is proposed that it will not, in future, be possible for anyone to re-licence a vehicle without the appropriate official documentation. For the purposes of successfully implementing VIC this means without the production of the registration document (form V5) or the vehicle excise licence renewal notice (form V11). The purpose of making this change is to put another obstacle in the way of criminals who seek to pass off stolen or ringed vehicles to unsuspecting purchasers. This change will be a deterrent in itself. However, an additional deterrent will arise as a result of the introduction of the VIC scheme. This is because, if a criminal chose to apply for a duplicate registration document for a ringed vehicle in order to obtain a licence for it, he would know that he would firstly have to obtain a VIC certificate for the vehicle and thereby risk having his crime detected.

Risk Assessment

21. Last year around 470,000 vehicles were written-off by insurers. Of this total, around 185,000 were included within Categories A and B of the Code; 108,000 as Category C; and, 177,00 as Category D. However, the totals do not allow for the fact that there is a small amount of 'drift' between Categories, both due to original mis-classification and due to 'administrative error'.

22. All of these salvage vehicles have the potential to be used illegally in vehicle ringing, but Category C and D vehicles are the most likely to be used as 'donor' vehicles. This is because of the fact that Category A vehicles are supposed to be crushed; Category B are supposed to be broken up for spare parts; and, because of the fact that the police are liable to investigate requests for replacement registration documents in these cases.

23. Vehicle crime is the largest single category of recorded crime, with around 400,000 thefts of vehicles annually in recent years. Although there is no direct way of determining how many insurance write-offs are subsequently used by criminals in ringing crime, police estimates suggest that up to 10% of vehicles stolen are involved (some 40,000 vehicles annually, with a market value of around £140M).

24. It is not known how many self-insured scrapped vehicles are used by criminals engaged in ringing crime. The BVRLA estimate that their members write-off about 2,500 vehicles annually, and BVRLA members represent about 40% of all of the large fleet operators. Consequently, if the total number of self-insured write-offs was 5-6,000 annually, the self-insured sector only accounts for around 1% of the total number of vehicles written-off under the Code each year.

25. It is not known how many comprehensively insured and self-insured scrapped vehicles are subsequently repaired and put back onto the road each year. So far as is known, there is no authoritative record of the number of such repaired vehicles.

26. Unless the changes described in paragraphs 18-20 are made the VIC scheme simply will not work. Successful implementation of the VIC scheme is dependent upon these changes for the reasons explained in the preceding paragraphs.

Benefits

27. The main benefit of introducing a VIC scheme is that it would become very much harder for criminals to use all categories of salvage to provide stolen vehicles with the identity of genuine ones. This should help to deter theft of cars to some extent and also help to prevent unsuspecting purchasers from buying stolen cars. In turn, this should bring benefits to the vehicle insurance industry and their customers.

28. VIC could also be made to work for vehicles which are 'privately written-off' by their owner/keepers. In these cases, there may still be some potential for criminals to purchase a seriously damaged or unroadworthy vehicle for use in ringing crime. This risk is not considered to be very significant (for reasons discussed in para.16). It is nevertheless the intention to draft the enabling legislation in sufficiently broad terms so as to enable the scope of the scheme to include any vehicle which had been scrapped by its owner, for whatever reason. The reason for doing so is in case criminals subsequently turn their attention to 'privately written-off vehicles' once the VIC scheme starts to bite. There is no intention, however, to subject such vehicles to VIC in the first instance.

29. A consequential benefit of VIC is the fact that purchasers of vehicles will know, with some certainty that, whilst the vehicle they are intending to purchase has previously been written-off, there is very little risk that it is a stolen vehicle.

30. Another subsidiary benefit is the fact that, since the VIC scheme is designed to corroborate the identity of the vehicle, it will help to identify those vehicles which have been pieced together from one or more donor vehicles (ie: 'cut-and-shut' vehicles). This will be possible in cases where a 'repairer' has pieced together parts from one or more vehicles, each of which bears the unique identity mark belonging to the donor vehicle. This fact will bring benefits to unsuspecting purchasers and put pressure on 'cowboy' repairers (because of the risk of having their work discovered).

Options

31. Three options have been identified:

  • Option 1 - continue to rely on present controls;
  • Option 2 - introduce a VIC scheme;
  • Option 3 - introduce a more sophisticated version of VIC to check vehicle roadworthiness as well as vehicle identity.

32. Each of these options have been considered carefully by the Department, in consultation with interested parties, and it is considered that Option 2 - to introduce a VIC scheme - is the most appropriate in the circumstances. This Option is also the Option recommended to the Government by the Vehicle Crime Reduction Action Team[11].

Estimate of the Impact of the Options on Risk

Options

Option 1

33. Under current arrangements the fate of vehicle salvage covered by the Code should be that the very seriously damaged vehicles should be subject to crushing or breaking for spares. Less seriously damaged vehicles can be repaired.

34. In all cases where there is subsequent registration and/or re-licensing activity on salvage in Categories A-C, DVLA notify the police - in view of the risk that the applicant's vehicle has been involved in ringing crime. However, in view of the very high number of notifications to the police by DVLA, and also in view of competing priorities for police time, many such notifications cannot be followed up particularly Category C notifications. Consequently the current arrangements are thought to have only a limited impact on the theft of vehicles.

Option 2

35. Under VIC, in any case where someone seeks to obtain a V5 from DVLA and/or to re-licence a 'scrapped' vehicle, they will be advised firstly to submit their vehicle (in its repaired state) for a VIC inspection. This means that in all cases where a criminal might consider purchasing relatively low value salvage or scrap[12] for use in ringing crime, he would know that the stolen vehicle would subsequently have to undergo an identity check before it could be returned to the road.

36. Clearly it is impossible to predict precisely what effect the VIC scheme would have on ringing. However, if VIC were to be fully effective, this would help to prevent the theft of up to 40,000 vehicles annually. It is impossible to speculate on what percentage of ringed vehicles could be detected under the VIC scheme, but clearly the objective would be to make the inspection as successful as possible. Equally, it is impossible to give a precise percentage of the contribution VIC would make to combating ringing crime as opposed to the associated measures noted in paragraph 3 above. However, what can be said is that it is considered that all of the measures, collectively, will make a major contribution towards combating vehicle crime generally (this is the recommendation from VCRAT).

37. VIC would also deliver the associated benefits discussed above (in paragraph 29 & 30).

Option 3

38. Under this Option, a form of enhanced vehicle roadworthiness check would be combined with the VIC inspection.

39. The impact of this Option on the risk would be the same as for Option 2 above (as identified in paragraphs 35-37). However, under this Option there are liable to be some additional benefits for road safety too. These would arise in those cases where a vehicle that had not been involved in ringing crime had nevertheless been poorly repaired.

Quantification and Valuation of the Benefits of Each Option

Options

Option 1

40. What is, in effect, a 'do nothing' approach would obviously not result in any additional costs.

41. Nevertheless, even Option 1 involves costs - primarily to the police in relation to following up reports about re-licensing activity on, primarily, Category A & B vehicle salvage. It is not possible to make any reliable estimate about these costs or about the effectiveness of this action. However, anecdotal evidence is that this work cannot be regarded as a priority above other concerns for some Constabularies. Consequently the current arrangements are thought to have only a limited impact on the theft of vehicles.

Option 2

42. A VIC inspection would probably cost in the region of £20/25 per vehicle (at year 2000 prices).

43. If VIC were to be able to help stamp out all car ringing crime, this would help to eliminate up to £140M worth of illegal trade in stolen cars annually. It would also bring corresponding benefits to insurers in terms of 'pay-outs' in respect of stolen vehicles and consequential benefits to their customers - in terms of a reduced burden on insurance premiums.

44. VIC inspections would also help to save police time - so that they would, in future, only be called on to investigate a small proportion of cases. These would only be those cases where it was clear that the identity of the vehicle had been altered.

Option 3

45. To be meaningful, an inspection under Option 3 would be likely to cost around £200.

46. As explained above (in paras.38-39), this Option would deliver exactly the same benefits as Option 2, plus some additional ones. The additional benefits would arise to the extent that, under this Option, an enhanced form of VIC inspection could detect repair/roadworthiness defects and require them to be rectified. Such an enhanced form of inspection could be devised, though it is uncertain what benefits this might bring in terms of road safety. The reason for this uncertainty is because there is very little hard evidence to suggest that legitimately repaired vehicles are left with roadworthiness defects, or that such vehicles are involved in a significant number of accidents in which defects are either the cause or a contributory cause.

Compliance Costs

Option 1

47. There would be no additional costs.

Option 2

48. The direct cost is estimated to be £20 to £25 per vehicle inspection - a cost to be borne by the vehicle presenter. The total direct costs are therefore estimated to be £20 x 140,000 = £2.8M annually (as compared, for example, to the value of illegal ringing trade = £140M). The total direct costs would be £20 x 285,000 if both Category C and D were subject to VIC inspections = £5.7M.

49. Indirect costs could also be incurred by vehicle presenters - in terms of loss of personal time and other overheads involved in arranging for vehicles to be inspected. It is not really practicable to identify precisely what costs are liable to be incurred because it depends upon who has carried out the repair of the vehicle; what their business is (the repairer might be a private enthusiast); and, how close they are to a 'VIC inspection station'.

50. What can be said is that the indirect costs will be kept as low as possible for the following reasons:

  • VIC inspections will be available at some 91 Vehicle Inspectorate testing stations located around the country (and so most applicants for a VIC inspection should only have to travel a maximum of about 35 miles to a testing station); and,
  • there will also be an exemption for vehicles being taken for a pre-arranged VIC inspection, both:
    • in respect of the requirement to have valid vehicle excise duty; and,
    • in respect of the requirement to have a valid MOT.

51. On average, it may take a vehicle presenter 0.5 hours to drive to an inspection centre (one of the Vehicle Inspectorate testing stations). On average it should take no more than about 20 minutes for the inspection and associated paperwork to be completed (because all inspections will need to be pre-booked). And, on average, it may take a vehicle presenter half an hour to return from the testing station. In sum, a total of one hour and twenty minutes - which might equate to an additional cost to the applicant of, say, £15 per inspection. On top of that it would be reasonable to include an element for vehicle operating costs of, say, £5 per return trip. The total value of the indirect costs could therefore equally be in the region of £20-£25 per inspection.

52. In summary, the total cost of introducing a VIC scheme would be around £7M to £14M annually (including direct and indirect costs). However, these figures are based on the assumption that all of Category C and Category D vehicle salvage is repaired and returned to road use.

Option 3

53. The direct cost is estimated to be £200 per vehicle inspection - again as a cost to be borne by the vehicle presenter. The total direct costs are therefore estimated to be £200 x 108,000 = £22M annually (or £57M if category D were also to be subject to inspection).

54. Similar indirect costs would be incurred as in Option 2.

55. In summary, the total cost of introducing an enhanced VIC scheme would be around £27M to £71M annually (including direct and indirect costs). However, these figures are based on the assumption that all of Category C and Category D vehicle salvage is repaired and returned to road use.

Other Costs

56. Under either options 2 or 3 there could conceivably be some additional burdens arising from the fact that motorists will, in future, only be able to re-licence vehicles if they can produce either a vehicle registration document or a vehicle excise licence renewal notification. However, since this requirement will be well advertised in advance of the implementation of this proposed new restriction, there should be no additional costs arising. If, subsequently, a motorist forgets to obtain the necessary documentation prior to attempting to relicense his vehicle and incurs additional expense as a result, it will arguably his own fault and not an expense attributable to the implementation of the proposed provisions.

Issues of Equity or Political Considerations

57. The VIC scheme is seen as an integral part of a package of measures proposed by the Government for new, and urgently needed, legislation. The introduction of the VIC scheme will be a vital step to take - in conjunction with new measures to introduce regulation of the vehicle salvage industry and changes to vehicle registration and licensing procedures - in order to help crack down on the theft of cars and on the illegal practice of vehicle ringing.

58. On the question of equity, it is clearly justified to ask whether the imposition of a £20/£25 inspection fee on repaired 'scrapped' vehicles, together with indirect costs amounting to £20-25 per vehicle, is reasonable. However, the additional burden on legitimate repairers - which will inevitably be passed on to the ultimate purchaser of the vehicle - has to be set against the fact that this will help to stamp out and prevent car crime associated with ringing. It will, in addition, help to discourage 'cowboy' repairers from seeking to profit from the bodged repair of 'cut-and-shut' cars.

Consultation with Small Business "The Litmus Test"

59. Consultation with representative small businesses has been undertaken via their trade associations and on two specific occasions during the year.

60. The first occasion involved a presentation by the Department at the ABI headquarters building on 11 January 2000. The specific purpose of the presentation on that occasion was to present to representatives of the insurance industry, and the vehicle dismantler and salvage trades, the DETR view on why Option 2 was preferred to Option 3. The clear consensus view of that meeting was that Option 2 was indeed preferred to Option 3.

61. The second occasion involved a further presentation by the Department, specifically about the VIC scheme. This presentation was on 11 October 2000, and was made to the same representatives again, and also to the Small Business Service (SBS)[13] and Cabinet Office colleagues. The Federation of Small Businesses was also present. A note of the meeting is attached as an Annex to this RIA (which includes a list of those present and who they were representing including small business interests).

62. The consensus view from the 11 October meeting was that the principle of the proposed VIC scheme was supported. At the meeting those attending acknowledged that the idea of the VIC scheme had been agreed to in principle at the meeting in January 2000. At the meeting no-one dissented from the DETR assessment of the compliance costs, which have been estimated by DETR economists. However, concerns were raised in connection with the need to ensure that the implementation of VIC provided a level playing field for the handling of written-off vehicles; and, in connection with the police estimate that some 40,000 'scrapped' vehicles are involved in ringing crime annually. (These concerns are addressed in the section below on the results of consultation paras.68-80).

63. The British Vehicle Salvage Federation (BVSF) has been specifically consulted about the RIA. Their membership covers a wide spectrum of small to large companies representing approximately 80% of the salvage business. In addition, the Motor Vehicle Dismantlers' Association (MVDA) has been consulted - whose membership primarily comprises smaller businesses - and also REMOCO in Stockport.

64. In addition, the issues have been fully considered under the auspices of VCRAT. This group was set up in 1998 by the Home Secretary with a view to developing a strategy for reducing vehicle crime by 30% over five years. VCRAT is, in itself, effectively a consultative body representing a wide range of interested parties, including small businesses. VCRAT has always recognized that a balance needs to be struck between the effectiveness of crime-prevention measures and the associated costs, including the costs to small businesses, but has nevertheless given a clear recommendation to the Government that a VIC scheme be introduced.

Other Costs

65. Costs will be incurred by the Vehicle Inspectorate of the Department of the Environment, Transport and the Regions in so far as they will need to recruit additional staff in order to complete VIC inspections. They may also incur additional capital costs and overhead expenditure, although these are unlikely to be significant.

66. An estimate of these costs has already been made and they are the same as the direct costs identified in paragraph 48 (£2.8M annually if only 'Category C' write-offs are subject to the VIC scheme and £5.7M if 'Category D' write-offs are also included within scope). The reason the costs are the same is because the Vehicle Inspectorate will be charging for VIC inspections on a cost-recovery basis.

67. The costs are based on the fact that:

  • each VIC inspection by a vehicle tester will take between 12-18 minutes to complete;
  • each VIC inspection will require about 6 minutes of administration time for fee receipt and data entry.

There will be an estimated £610K incurred by the Inspectorate in set up costs. There will be a need for some initial and subsequently on-going management of the scheme by a technical grade officer - 3 months work initially and subsequently one-tenth of a man-year.

In addition, there will be a need for:

  • Development of IT systems to record the results of inspections and link these to the vehicle record at DVLA (and possibly also to the Police National Computer);
  • A proportion of estates overhead expenditure;
  • (Possibly) the purchase and installation of hoists to allow under-vehicle inspection; and,
  • Training of vehicle testers (which will require 150 man-days of input by VI staff).

It is estimated that all of these costs will be recovered through an inspection fee of £20-£25 per vehicle.

Results of Consultations

Background

68. The Department has been consulting with interested parties on the options for dealing with the problem of vehicle ringing over a number of years. Discussions have been held with the vehicle insurance industry, the vehicle salvage industry, the garage trade and also with the police. All agree in principle with the need for new legislation to tackle the problem.

69. The idea of the VIC scheme evolved from an originally more complicated idea, which was broadly based on Option 3 above (namely a post-accident repair inspection scheme which was primarily designed to check vehicle 'roadworthiness'). This more complicated scheme was originally proposed - 10 years or so ago - both by the motoring associations (the RAC in particular) and also several companies which offer such inspections on a commercial basis. Discussions about such an idea were also held over several years with the Association of British Insurers and the trade associations representing the interests of local authority trading standards officers - the Institute of Trading Standards Administration (ITSA) and also the Local Authority Co-Ordinating body on Trading Standards (LACOTS).

70. The original idea was gradually abandoned for several reasons, principally the fact that, despite extensive consultation with all of the interested parties, it was impossible to find evidence to substantiate the view that accident-repaired vehicles might constitute a major threat to road safety. Furthermore, there had not been an opportunity to obtain enabling legislation in any event. However, the establishment of VCRAT provided a new impetus to look at the issue from a slightly different angle, namely from the point of view of aiding the prevention of vehicle crime rather than with a view to enhancing consumer protection and road safety.

71. Consultation on the VIC proposal has specifically been undertaken under the auspices of VCRAT, which firmly supports the introduction of VIC (Option 2). Consultation has also specifically been undertaken with vehicle insurance and salvage industry - principally in the form of a presentation to insurance company and salvage operator representatives on 11 January 2000. All supported the principle of a VIC inspection - estimated to cost in the region of £20-25 per inspection - in order to help bolster the objectives of the Code of Practice on the disposal of Motor Vehicle Salvage (see para.4). None preferred the idea of a more complicated and expensive inspection (namely option 3).

Detail

72. The following organisations have also been specifically consulted about this RIA: the ABI, MVDA and the BVSF. All of these organisations have, in turn, again consulted representative members about the proposals, including in the case of the MVDA and BVSF small business interests.

73. The ABI have indicated that they fully support the proposals.

74. The MVDA have indicated that they are content to support the principle of the VIC scheme, provided there is a level playing field for dealing with written-off vehicles. They have also raised some detailed points about definitions to be used in the enabling legislation, which it is proposed to address through further consultation when the relevant Bill provisions are being drafted.

75. The BVSF have indicated that they too are content to support the principle of the VIC scheme, provided there is a level playing field for dealing with written-off vehicles. They have also raised some detailed points about definitions to be used in the enabling legislation, which it is proposed to address through further consultation when the relevant Bill provisions are being drafted. In addition, the BVSF have questioned the police estimate of the number of 'scrapped' vehicles involved in ringing crime (para.23).

76. The BVSF have suggested that a VIC scheme would be unnecessary (ie: that ringing crime associated with scrap/salvage vehicles would be eliminated) if DVLA was prohibited from issuing replacement registration documents for Category A & B vehicles. However information from other consultees strongly suggests that this is not the case. Furthermore, the BVSF suggestion is likely to interfere severely with the trade of some salvage dealers/repairers - principally the smaller businesses - which legitimately repair vehicles in these Categories (because the salvage has been incorrectly classified see para.8 above).

77. The British Vehicle Rental and Leasing Association (BVRLA) and the Association of Car Fleet Operators (ACFO) have also been consulted, both about the principle of VIC and about the RIA. They represent the interests of major vehicle fleet operators who 'self-insure' vehicles (see paras.11-13 above). Both organisations support the proposals for the VIC scheme and both have contributed information to the RIA.

Changes made Since Consultation

78. Salvage trade representatives are concerned to ensure that they are not treated unfairly when compared to self-insurers. This point was acknowledged in the original proposals which were intended to encompass all written-off vehicles however, the proposals have now been strengthened to deal with this concern effectively as indicated in paragraphs 11-13.

79. Salvage trade and insurer representatives advice is that little ringing crime is likely to be associated with lower value third party insured vehicles belonging to 'private' owners (see para.13). It is agreed, therefore, that the VIC proposal should not automatically apply to such vehicles. Nevertheless, as a safeguard it is the intention to draft the enabling legislation in sufficiently broad terms to ensure that these vehicles can be included within the scope of the VIC inspection scheme if they turn out to be a problem at a later date (see paras.14-16).

80. BVSF representatives questioned the number of scrapped vehicles involved in ringing crime. We have relayed this concern to the Association of Chief Police Officers, whose representative (George Pothecary, Assistant Chief Constable (Deputy) of Dorset Police) confirms that scrapped vehicles continue to be used in ringing crimes and that the estimate put forward in paragraph 23 is reasonable based on police experience. In other words, that up to 40,000 scrap/salvage vehicles are involved annually in ringing crime.

Summary and Recommendations

81. Given the compelling need for new measures to help crack down on car crime, Options 2 and 3 are both preferable to Option 1 (which is to leave things as they are).

82. However, Option 2 (the VIC scheme) is the preferred option for the following reasons:

  • VIC focuses on car crime, which is the main issue under consideration;
  • VIC would be cost-effective (see paragraphs 43 and 52);
  • an enhanced version of VIC would not be cost-effective (see paragraphs 43,46 and 55);
  • several commercial organisations already offer specialised vehicle inspection services and there is no clear justification for drawing these services into the scope of legislation;
  • VIC could be introduced relatively quickly compared to an enhanced version of it.

83. This proposal will provide that, by spending £7-14M annually on a VIC scheme (para.52), up to £140M of vehicle ringing crime could be prevented (para.23). However, there are some important caveats to be read in conjunction with this conclusion:

  • the introduction of VIC will help to combat vehicle ringing crime (but the cost of doing so needs to be read in conjunction with the associated new measures to introduce regulation into the vehicle salvage industry and changes to vehicle registration and licensing procedures);
  • it is not known what percentage of 'written-off' vehicles are actually repaired and returned to the road - the £7-14M are 'worst case'- which is to say the figures assume that 100% of repairable 'write-offs' are repaired and returned to the road (the true percentage is likely to be lower, so the cost-benefit equation is likely to be more favourable than indicated here);
  • it is not known what percentage of ringed vehicles will be detected by the introduction of VIC - the objective will be to make it as effective as possible (para.36) (which means probably 80-90% in practice).

84. Although Option 2 is the preferred option, the Department is naturally very keen to take all reasonable steps to enhance road safety. It is also mindful of the fact that at least a proportion of the vehicles submitted for VIC inspections may have roadworthiness defects. For this reason the Department intends to make the following points clear to vehicle presenters:

  • the purpose of the VIC inspection is to confirm, so far as practicable, that the subject vehicle is the genuine one for which a replacement registration document and/or (VED) licence is being sought;
  • the VIC inspection does not look at any aspects of vehicle roadworthiness (the issue of a VIC certificate in no way confirms that the vehicle is fit for use on the road);
  • the subject vehicle is one which has been notified to DVLA as having previously been written-off by an insurer or 'self-insurer' and this may well mean that it has previously sustained serious accident damage;
  • the vehicle presenter is therefore strongly advised to arrange for the vehicle to be independently inspected by an expert before agreeing to purchase or to allow the vehicle to be put onto the road;
  • there is a number of commercial organisations which offer specialised advice in relation to accident-repaired vehicles (a list of generalised examples will be included overleaf).

It is proposed to do this by handing a list of expanded bullet points on these issues to all vehicle presenters in addition to a VIC inspection certificate.

Enforcement, Sanctions, Monitoring and Review

85. It is proposed that, for the time being at least, VIC inspections would be carried out by the Department's Vehicle Inspectorate. However, it is proposed that the enabling legislation would not be restrictive and would say something to the effect that the VIC inspections would be carried out either by or on behalf of the Secretary of State. Consequently, the possibility of VIC inspections being carried out in the future by approved bodies in the private sector is not ruled out. The benefit of retaining control of the scheme in the public sector initially arises merely because of the uncertainties associated with a new area of policy and practice.

86. The scheme will be self-enforcing to the extent that anyone who seeks to re-licence a vehicle within the scope of the VIC scheme, or who seeks to obtain a registration document for such a vehicle, would be liable to be faced with a follow-up investigation by the police. However, it may also be necessary to include appropriate offences provisions in the enabling legislation in order to make the scheme fully effective.

87. The scheme would be monitored closely by the Department and be subject to periodic review. The legislation and its effect will be reviewed specifically two years after its introduction.

Declaration

I have read the Regulatory Impact Assessment and I am satisfied that the balance between the cost and the benefits is the right one in the circumstances.

Signed by the responsible Minister...............................
Date......../../2000

Contact Point

David Briggs
Department of the Environment, Transport and the Regions
Licensing, Roadworthiness and Insurance Division
Zone 2/05, Great Minster House
76 Marsham Street
London SW1P 4DR

Tel: 020 7944 2453
Fax: 020 7944 2459
E-mail: lri.mot@dft.gsi.gov.uk

1: At present vehicles which are the subject of total loss payments by insurers are notified to DVLA by form V23. Forms V23 are generally submitted to DVLA by the vehicle insurer, although the police also sometimes submit these forms. In future probably from 2001/2 notification of this category of 'special interest vehicle' will be notified to DVLA electronically via the Motor Insurers Anti Fraud and Theft Register (MIAFTR). MIAFTR is an industry database complied on behalf of insurers in order to help prevent fraud associated with stolen vehicles.
2: The issue of a VIC certificate will certainly involve the vehicle presenter being given some form of official paper record to confirm that the vehicle has been inspected and that it has passed the VIC inspection. However, a record of this fact will almost certainly also be held electronically and be recorded also on the DVLA vehicle database.
3: At present it is not a clear legal requirement for the vendor of a vehicle to transfer the vehicle registration document (V5) to the new owner/keeper. It is proposed to introduce such a requirement by making an appropriate amendment to the Road Vehicles (Registration and Licensing) Regulations 1971. This new requirement will, however, only be introduced following appropriate, targeted, publicity.
4: At present it is possible for someone to re-license a vehicle by self-declaration of details such as the keeper's name and address and the vehicle registration number. This arrangement allows someone to re-licence their vehicle easily if they have mislaid or lost their 'vehicle excise licence renewal notice' (V11) or registration document (V5). However, this facility can also be abused by someone wishing to disguise the identity of a stolen vehicle or to avoid providing correct keeper details. For these latter reasons the ability to re-licence a vehicle by self-declaration is to be withdrawn under an associated legislative provision. Consequently, a potential loophole for enabling someone to evade the VIC scheme will be closed. This abolition of the current arrangements will be implemented following appropriate, targeted, publicity.
5: The term self-insured also includes vehicles which are exempt from the requirements of third-party insurance by virtue of the provisions of section 144 of the Road Traffic Act 1988; or, who have a security instead, under the provisions of section 146 of the Act. However, there is only one s.144 depositor exemption and one s.146 security depositor in GB.>
6: This estimate has been provided by the Association of Car Fleet Operators (ACFO). It is only an estimate, but is intended to indicate that it is not generally worthwhile operators of 'small' fleets self-insuring, because the cost to them of replacing a seriously accident-damaged vehicle represents a high overhead cost. Consequently, operators of smaller fleets tend to insure newer vehicles under the terms of comprehensive insurance policies.
7: The average age of vehicles belonging to members of the British Vehicle Rental and Leasing Association (BVRLA) is 7.2 months. BVRLA have advised that their members make up 85% of the companies engaged in operating leasing of cars and commercial vehicles. They also say that the majority of their daily rental members insure through established insurance brokers. Only a small number mostly the large daily rental companies actually 'self-insure.
8: Members of the BVRLA have committed themselves to work to the insurers Code of Practice.
9: This information has been given as general advice from ACFO.
10: Any secondary legislation introduced under these provisions would be subject to consultation with interested and representative parties.
11: The Vehicle Crime Reduction Action Team (VCRAT) was set up in September 1998 to carry forward work necessary to meet the Government's target for reducing theft of and from vehicles by 30% over the five year period 1 April 1999 31 March 2004. Both the Team and members of its 13 Task Groups are drawn from a wide range of interested parties, including vehicle insurers, motoring associations, motor manufacturers, vehicle salvage operators and the police.
12: The actual value of vehicle damage depends on a number of factors including the extent of damage and also the age of the vehicle. Consequently, newer vehicles are likely to have a higher inherent value even if they are accident-damaged and 'written-off'.
13: The Small Business Service is an Agency of the Department of Trade and Industry. One of its aims is to minimise the impact of regulation on small businesses