Small Claims
IANAL but it does look as though they changed their terms without proper notification and without agreement. Whether it will be possible to reclaim all or part of prepaid hosting charges on the basis that the existing contract is thus cancelled I don't know. But Mayne Design's blog, mentioned in the article, is definitely useful as it has a screen copy of 123-reg's "We don't rip you off ... No hidden charges to transfer away".
For anyone unfamiliar with the Small Claims procedure, the Trading Standards Office at the local council can be quite helpful. And if there's no response or no success in response to an initial formal letter asking for refund and the promised free transfer the court procedure is fairly straightforward.