I know of no LA that does not take as much as it can lawfully get (in fact, I know of plenty that recover more than they are legally entitled to!)...
However, a way of seeking to challenge the decision whilst continuing to work in partnership with the LA would be to seek out the LA's ‘anti-poverty strategy’ document, (sometimes known as a ‘social inclusion strategy/policy’) and refer the appropriate manager to that document.
Most LA's have an anti-poverty strategy in place, and Gloucester is no exception. A quick Google search throws up their policy documents, and also their BFI report, (see paras 2.234 & 2.235 which it might be helpful to point out to the LA). I have posted the Google search link below.
If the HB/OP recovery manager won't budge, it might be worth having an informal chat with the member who has responsibility for the ant-poverty strategy (go through the member services office - the switchboard will be able to give you advice about who the relivant member is) pointing out that such a massive hike in the recovery rate might be against the policy thrust of the members. Officers have to adhere to the policy directions of members, and that approach might also bear fruit (sometimes in HB politics is all!)...
Hope this helps...
http://www.google.co.uk/search?hl=en&q=%22anti-poverty+strategy%22+gloucester&btnG=Search&meta=cr%3DcountryUK%7CcountryGB
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