I don't think there is much point in dissecting this DfT letter, beyond the essential statement that N-reg is here to stay until EASA gets going.
It was written by somebody who has almost certainly never touched a light aircraft with a bargepole, briefed by somebody from the CAA who may have done but whose salary and civil service pension depends on maintaining the revenue stream and who has spent his entire aviation career either in the RAF or in the CAA and there you have the attitude that "British is best" and "Americans are cowboys".
Those of us who fly IFR around Europe for real know perfectly well that any anti-FAA/IR bias is a load of bo**ocks. The FAA PPL/IR is perfectly suitable for the job.