Send them the completed N1 form - you don't have to go go through with it even if they still refuse - but it should jolly them into it.
As for costs. For the amount you're talking about it'll cost you £30 which you can add to your claim (so you'll get it back if you win) and as it's a small claim they can't claim anything from you for their costs.
I'd stick some money on it not getting that far if you send them a completed N1 form and say they have 14 days until you send it.
Lace it with sentences like "I believe that by offering you one last chance to remedy this issue I'm being as reasonable as possible". If they even go as far as showing this to a solicitor their council will see this sort of language and tell them you know what you're on about. In court it's all about being seen to be reasonable with them.
