The MOT testers handbook states that anything first used before 01 Aug '95 where the engine code cannot be indentified (ie, Starlets 4E-FTE) then the basic idle test is used. The 4E is a very efficient engine, so if it fails that it's fucked. The limits are 3.5% CO2, mine pulled 0.86% running a decat and 180bhp.
Now, here's the problem. Any car first used after 01 Aug '95 where the engine code cannot be indentified requires the basic cat test, with the idle limits at 0.50% and fast idle at 0.30%. So basically, a late GT or ANY Glanza requires a basic cat test. If you own a GLanza and they do the basic idle test, do say anything and take it back next year as they've dropped a bollock!
To answer your last question, de-cat'ing reduces the restriction in the exhaust and lets the gasses flow more freely.