They will do everything to keep people flying but it will, to convert your CAA licence to EASA, cost money however you do it. CAA to JAR to EASA or CAA to EASA will cost with money going to the CAA either way. Is it written into Part FCL that converting from a national licence requires a flight test??? Not that I can find.
Are you sure this wasn't a CAA publicity stunt to fool you into thinking they are on your side when, in fact, they goldplate everything to screw you? They are driven by money, not safety anymore.