Reading the letter, this isn't a MoD decision: it is a HMT one. And however much the MoD doesn't want to comply with it, it's hands are tied as this is the law as it is currently read. I would suggest that legal action is the only way forward in order to change the law as it is interpreted.
With that kind of attitude you must be one of the VSOs staring at their shoes hoping the whole thing will blow over.
The people who applied for and received this did everything the RAF and MoD required of them. They followed the AP (or DIN/JSP etc). They completed the correct paperwork (correctly), they had it checked, by more than one signatory I would imagine. All of that would have been iaw the prescribed process. What else could they have done? If HMT think there is an issue with this, then the fault lies fairly and squarely with the MoD/RAF (RN/ARMy etc too). There must be a few people who implemented this within the MoD and services keeping their heads down and hoping no one spots that it is them who made such a monumental cock up.
S-D