JAR FCL 1-185 was introduced in 2005 and this is where it states that IRs have to be current within 7 years otherwise exams have to be taken again. But the CAA decided to only introduce the rule in LASORS 2010 - which they only got round to publishing in April 2011 - and from a document produced by an organisation which no longer exists! They also added the caveat that if the IR has expired for more than 5 years, A CAA flying examiner must observe the IR and that no other non-JAR ICAO member state or military IR would count.
One questions their motive for introducing it. You could say that the CAA are diligently bringing UK licence holders into line prior to EASA licence introduction, or some (the cynics?) might suggest that the CAA see it as a good source of revenue prior to losing licence fees to EASA. Either way it makes no sense - as other JAR member states have not been applying it, and they are saying that Hong Kong or military IRs are no good - even if the holders have been flying their RAF Tristars or Hong Kong registered 747s into Heathrow. And as for the exams, they are the basic IR ones with questions such as "What does the lattitude nut do in a DI" for which a 747 captain having to take makes about as much sense as asking a doctor to retake his biology A level because he's been working in America for the last seven years.
I would suggest that the JAR FCL 1-185 refers to any ICOA IR, and suspect a legal challenge has a great chance in succeeding.
And as for the cost. I was quoted 7 exams at GBP69 each, and a CAA flying examiner was GBP550 when I took my IR about 12 years ago - so it will be more now. A nice little earner!