@Joanne151 The Extenuating Circumstances policy gets a lot of flak on these boards. Lots of hosts feel that guests are awarded money when they don't deserve to be. Many, many people in Britain have received refunds over the past week and a bit due to the weather.
I would agree that your guest should have cancelled earlier, and should not have been refunded for the night they didn't cancel. If you have this circumstance again, I would encourage the guest to cancel as soon as they say they won't be coming, so you can try and get another booking, regardless of whether or not they will apply for Extenuating Circumstances.
If you want to see the policy changed, go over to Host Voice https://community.withairbnb.com/t5/Host-Voice/idb-p/host-voice and vote for one of the many requests to change the policy.