Re: Not just 123reg but also LCN (though not on auto-renew)
I'd not call out any single registrar on the free .uk registrations. As far as I can see many (most?) did it and probably better than letting the names go onto the open market by accident.
Frankly, many small business owners are too busy doing whatever their business does and disinclined to try to get their heads round what seems to them to be an obscure technical issue, they need advice from someone a bit more clued up but that too could imply time and money.
The free first year was a gentle shove to say: we take the issue seriously, we think you should too. If that didn't work then maybe scare tactics are a valid way to prod the client into making a decision. Of course auto-renewal by inertia, seemingly what some registrars have tried, is not acceptable.
In some cases the downside risk is possibly needing to pay Nominet DRS £750 (or worse) making even the rather steep £12 p.a. at 123reg worthwhile. For many that annual fee is money down the drain, for Nominet it's the gift that keeps on giving.
In my opinion Nominet are the real bad-actor in the whole scenario. The cost to them of allocating the .uk name to the corresponding existing .co.uk name registrant could easily be absorbed. In future registrants of _new_ names could choose to buy uk, co.uk or both. Existing owners of both could be free to sell one variant at which point the new registrant would start paying annual renewals.
The easy option is "pay up", a little smarter is a quick risk benefit analysis. The risky choice is to do nothing, the risk may be trivial but I've seen some valuable lapsed .uk names being auctioned by drop-catchers for substantial prices.