Ah well this where something changed with BA a few months ago. This was exactly what BA used to do, cancel the cabin, and naturally this meant they had to offer a full refund but BA were not prepared to pay EC261's reimbursement formula. In my view this wasn't in line with EC261 since the intent was to protect the passenger's interest, so though it was portrayed differently from now, the impact on the customer was exactly the same, namely they bought (say) First, but the airline was not prepared to honour that. Now it depends on your point of view here, some would say that a full refund is the better option, since that may give the passenger more options with other airlines, other dates, but EC261 doesn't actually prohibit downgrades, it doesn't even offer compensation for downgrades, it merely sets out a customer friendly reimbursement process. If someone is downgraded for a short leg on a long sector, after Mennens the refund amount could be trivial (or even negative!).

Unlike in other parts of EC261 there is no ticking clock in the wording, the downgrade reimbursement process would still apply whether done at the gate or months ahead of time. BA's argument at that time, in line with other airlines, was that this provision was purely for overbooked services, so at the gate mostly, and it's probably true that was the original intent of the clause. But CJEU said a downgrade is exactly that, and to be reimbursed accordingly. CEDR and MCOL rulings largely - but not always - favoured the customer on this one.

Then when the pandemic started, giving full refunds became somewhat undesireable from the airlines' perspective, so BA stopped offering them for equipment changes, the main cause of this issue at the moment, since even 25%, where claimed, is better than 0%.