This is scary.

[McMouse]

An elderly lady was involved in a minor shunt near my house and because she insisted she had not run into the other and given a sight tes the police were called. She was breathalyser and found ok, given a sight test which she failed. The police officer said he would inform DVLC of the incident with the recommendation that her licence be suspended, but he had no power of authority to prevent here driving off again.

[RevArkwright]

Eddie, it does not read like that. It implies the police were called after a sight test. Still confused.

[Baldric]

According to the OP she was given a sight tes, then police were called

[RevArkwright]

That is how I read the situation Baldric.

[EDDIE51]

McMouse is just getting a bit confused , the sight test is mentioned twice .
In such a situation if would be normal for the police to ask the driver to read a number plate to give an idea as to his/her vision.
The meaning is very clear, elderly driver has an accident but insists she has not hit anything, police are called and give her a breath test and ask her to read a number plate. She can not read the numberplate so the police report her to DVLC .
The police can not simply confiscate the car and her licence , the DVLC will now cancel her licence until she can pass the sight test. It is possible that if she gets a new pair of glasses she will be able to read a number plate at the required distence. If this happens she can just carry on driving unless she is prosecuted for driving without due care and the court order her to retake her driving test.