As far as I am aware there is no such thing as a 'lifetime' Blue Badge. Badges have to be renewed every 3 years.
The government Blue Badge guidance is here:
http://www.dft.gov.uk/adobepdf/259428/281009/laguidance.pdf
Thare are, of course, 'indefinite' awards of DLA highest rate mobility component (lifetime awards went years ago), which provide passporting to entitlement to a Blue Badge.
I would say the refusal is more likely to do with how the local authority draws up its policies. The basic marked on-street parking space can be used by any Blue Badge driver, but there is also another type of marking reserved for the exclusive use of a resident, requring a Trafiic Control Order which costs lots! Even, the basic marked space attracts a fee to be paid by the resident to the council.
When granting a marked space, councils usually want to know if there will be a potential traffic cogestion problem or if there is already pre-existing off-street parking. The refusal to grant a space sounds like a Jobsworth reply and may not reflect the council's real policy.
I would get the client's local councillors involved to see what they can unblock and also request a copy of the policy.
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