I completely agree with this. You've tried being reasonable, but he is being a cock. He thinks he's got you over a barrel because he keeps quoting his consumer rights. But, I would like to know where it's says in his consumer rights, if you discover a fault, you should take it upon yourself to start removing parts to investigate further. His downfall is removing the instrument cluster. He is simply trying it on, and will soon back down once he realises you're not a push over.
Although, I would personally refund him, less expenses. You just know if he gets so much as a puncture in a few months time, it will be your fault.