In April 2015, avios pricing changed - WTP became 2x the price of WT, CW became 3x, First became 4x (instead of 1.5/2/3). That has nothing to do with domestic pricing, however.
Before the introduction of domestic CE, there was a "business" product that meant that, although the add-on to long-haul was free, customers travelling long haul on business, whether booked with avios or not, had lounge access and priority security at the departure airport. (Effectively they had the same hard experience, apart from seat selection, that a silver card holder would have had). The on-board product was identical to economy.
Since the introduction of CE in domestic, I imagine that it follows the same rules as from elsewhere in Europe - different flight legs need to be upgraded separately.
However, as domestic bookings are 'free' when connecting then I can understand the counter logic - i.e., that domestic bookings should be an exception, because you pay the avios difference for the whole route and if you booked the whole route in CW vs WTP, you'd only pay the equivalent difference in avios for the long-haul. This is probably also the reason why the avios calculator is giving you the anomalous result. I'd suggest that, given the overall policy and the way in which avios upgrade costs are calculated, plus the information given on the calculator, you have some basis for argument - but the opposite policy isn't really unreasonable.
As for the difference in taxes: the actual tax won't be the issue. When you upgrade using avios, you pay the difference in avios plus the difference in taxes, fees, and surcharges (TFC). Here, the actual tax is the same (WTP or CW pay the same APD) but the fuel surcharge can be different between CW and WTP. When booking from London, you will be using a different fare basis, in each cabin, than you would be when booking from Newcastle. As such, the difference in TFC could be larger or smaller from either airport. There is no rhyme or reason - it's just a question of the fare basis used for the comparison on the day.