I may have misread the earlier part of this thread, but I wonder if the Lady in question is (or was) in receipt of the higher rate mobility allowance part of DLA. If so then there would be no question of her entitlement to a Blue Badge. She really should look for some professional advice and ask her doctor to intervene. This is a subject very dear to me as I am a Blue Badge Holder and I am very involved in disabled rights issues.
I think this is just some bureaucrat exercising their muscles.

What part of the country are you in? If it were local to me I would take up the cudgels.