Homeguard,
If I see someone breaking into your home, I wil do nothing. After all we don't want to be tell tales now do we?
Your post correctly shows that instructors must be examples to other members of the flying community. i.e. They must show good example in all aspects of their operation.
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If PPL examiners had the power to cancel class ratings on seeing a substandard level of piloting ability; there could be some hope but they can't.
No they can't. However, if it was serious enough, I would write them a line explaining where I thought their standard fell below that expected of a basic safe and competent pilot and send a copy to the CAA for attaching to their file. If they are not members of our club then a letter to the other club / group / airfield owner will do. Thus when they ignore your advice and have the accident you expect, the evidence is there that you did your best to prevent it rather than simply turning a blind eye.
Regards,
DFC