no, it's double counting. Assume he had objected at the time and the money was put away during his appeal. It would accumulate interest until the appeal was settled, it doesn't accumulate inflation. Inflation is the measure of how each dollars buying power lessens over time.
No you can't the compounding interest would be one the money actually in the bank at each point in time not what it is nominally worth adjusting for changes in purchasing power. For example if I deposited money today and earned 5% interest what happens to the values of that money due to inflation doesn't matter (baring some intervention).
Compound interest tells us how much money we have. If we assume an improbably static 2% every year, today we have ~£270 in our account.
Inflation doesn't work on top of that because £270 is what it's already worth today. Inflation tells us what our original £100 is worth in terms of buying power.
If a loaf of bread cost £0.10 in 1967 but costs £1.50 today, we can say over 50 years there has been 150% inflation. These sorts of price index comparisons allow us to compare worth back then.
Or in reverse, you can see this in very real terms. You could look at your £270 and see that would only buy you 180 loaves of bread. In 1967, your £100 would have garnered 1000 loaves. Interest has not kept up with inflation. You have lost money —in this example— by "saving" it.
On a shorter timescale, RPI and CPI allow central banks to see inflation and —to a point— alter their base rates to help influence the balance of savers-vs-spenders, lessening the popular disposable cash, and lessening inflation.