Hello Geoff,
Sorry to hear about your issues. My wife had the same issue on her 07 plate 9n Polo. Her engine code was BBM. Is your 54 plate a BMD? We ended up calling the EML the £500 light as that was how much it cost to rectify the problem at th dealer.
The issue is going to be one of 3 things; compression, timing or fuel/air mixture. The older BMD engine were prone to issues with the valve seats leading to compression problems. What the dealer don't tell you when you buy this motor is that they prefer higher octane petrol and not you run of the mill supermarket fuel. The other thing is ensuring that the engine has had the oil services done bang on the dot with the recommended grade of synthetic oil.
I agree that the fault code should be read with the VCDS system. I would not be too quick to condemn the O2 sensor as these are usually bullet proof. It's worth testing the pre cat sensor if you have a Volt meter to see what reading it's giving and determine the voltage negative/positive readings refer to whether the engine is running lean or rich.
The issue with my wife's car was a failing fuel pump but the garage has wrongly diagnosed a faulty cam position sensor hence the inflated price. Parts darts can be a very expensive game to play.
If your car is running smoothly it's unlikely to be a compression problem related to worn valve seats as in those cases the car runs and sounds terrible. In addition there is no repair for the Valve seat issue Volkswagen UK recommend a replacement head as opposed to relapping. Unless you can extract some kind of goodwill payment it will require you to sell your first born child, lol. But don't jump the gun it might be something minor.
Volswagenforums.co.uk is also an invaluable source of good advice.
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