I can understand why you would feel pretty peeved at a non-reclining seat. I would be too. Only you can know if that's an offer you'd be willing to accept. And by all means you should pursue it further with BA if you disagree with their offer.

My gut instinct with this is that on a £300 upgrade, a 50% refund isn't totally unreasonable. You got the additional benefits of Premium Economy - additional legroom, wider seat, enhanced meal. Then again, that's easy for me to type objectively from behind a keyboard, and I might feel quite differently having sat bolt-upright on an 8-hour overnight flight.

Go back to BA and ask them to reconsider the offer if you don't think it's fair. If that is their final offer, you can either accept, or come back here where there are other threads that outline the various options you have to take this further.