The short version is that N-reg can stay and that the FAA IR is crap.
The long version, with a nod to Julian who posted this on PPL/IR:
Government response
Introduction
1. I am writing to thank you for responding to the Department's Consultation on the application of UK regulatory requirements to foreign registered aircraft based permanently in the UK.
2. Our consultation paper of 1 August last year sought views on a proposal to take steps to ensure that all privately operated aircraft permanently based in the UK were operated under requirements equivalent to those contained in the appropriate harmonised European standards. We suggested that this might best be achieved through an amendment to the Air Navigation Order (ANO) aimed at preventing foreign registered aircraft (other than those registered in a state subject to EASA's requirements) from being based in the UK by limiting the time such aircraft could spend in the UK to perhaps 90 days in any 12 months.
3. Copies of the consultation paper were sent directly to representative organisations and stakeholders (listed in Annex C of the consultation document). It was also made available on the Department's website in addition to being publicised by a number of aviation magazines.
4. The closing date for responses was 28 October, although the Department accepted a small number after that date. We received 299 responses in all from many different sources including private citizens, Members of Parliament and the House of Lords, industry, commerce, aviation associations and foreign aviation authorities.
Responses to the consultation
5. Responses received by the Department demonstrated widespread opposition to the proposal to amend the Air Navigation Order to prevent foreign registered aircraft from being based in the UK by limiting the time such aircraft may remain in the country to perhaps 90 days in any one year. However, the Government has also taken note of the many constructive responses suggesting that Government action should instead focus on the reasons why people choose to place their aircraft on the US register and on disincentives to UK registration. Respondents emphasised in particular the perceived difficulty for holders of private pilots' licences of achieving an Instrument Rating in the UK under the prevailing JAR-FCL Instrument Rating requirements; the costs and commercial disadvantages of placing aircraft on the UK register; the relatively fewer aircraft and parts that are certified by the CAA as compared to the FAA or other Authorities; and the widespread recognition and acceptance of FAA licences and certificates worldwide. The feeling among these correspondents was that rather than Government introducing a limit on the activities of foreign registered aircraft, incentives should be introduced for owners to register their aircraft on the UK Register. Many respondents suggested they would move their aircraft to the UK register should CAA certification of aircraft and parts become more extensive and the process of obtaining an Instrument Rating be made more readily achievable.
Government response
6. The Government remains convinced that widespread flagging out of aircraft based in the UK is undesirable and out of line with the internationally accepted system of regulation of civil aviation embodied in the Chicago Convention. Our objective remains that aircraft based in the UK should be required to meet safety standards acceptable within Europe and be subject to verification by the UK and other European aviation authorities that they meet those standards. Taking into account the responses to the consultation, however, and while we will continue to monitor the operation of foreign registered aircraft based here, we conclude that it would not be appropriate at this time to introduce a requirement to place such aircraft on the UK register or impose a time-limit on their activities. We have reached this view in part because it appears to the Government that European proposals published in November 2005 to extend the scope of common European aviation safety rules may provide a better means of achieving our objective in a proportionate way. Stakeholders have been consulted generally on the proposal "to amend Regulation (EC) No 1592/2002 on common rules in the field of civil aviation and establishing a European Aviation Safety Agency". This proposal specifically amends the scope of the EASA Regulation to include a category of aircraft registered in a third country and used into, within or out of the Community by an operator established or residing in the Community. Detailed implementing rules will be needed to give force to this amendment and we would expect the Agency to consult stakeholders on the details of their proposals at the appropriate time.
7. Regarding the widespread desire for a simplified instrument rating, the Government recalls that the current rating was established by the JAA acting on the advice of experts from the national aviation authorities of the JAA member States. Responsibility for future changes will rest with EASA. The Government will support efforts by EASA to address this issue, possibly through the provision of a leisure pilots licence similar to the UK NPPL but recognised across Europe. Respondents should note, however, that EASA will need to establish instrument rating requirements that are appropriate for European operations and weather conditions and that previous work by experts indicates that requirements based on the FAA instrument rating would not be acceptable for an instrument rating which gives access to class A airspace.