In short a full backup of the phone - back to factory settings has fixed the issue.
- Make sure you have a backup of everything you dont want to lose!!
- Backup to factory defaults
- Set up as if it's a new device (test the in App Purchase here by logging out of normal account and logging into test account from within the app, proceed if it works)
- Plug into Mac and restore to a previous backup
- Test the in-app-purchase as previously.
A few things to note -
I restored my phone twice before it started to play ball, the first time I set it up from a backup straight away, the second time I set it up as a new device, tested the in app purchase (which seemed to recover the issue) then I restored the backup, and it (fortunately) continues to work.
The phone I was having problems with was the phone I installed the iOS7 betas on. I think I read somewhere that the in app purchase wont work on a beta OS, but I had transferred to the GM release so I figured that wouldn't be the issue.
I'm still not certain if that is the cause, or just a coincidence, however it seemed to work for me, and hopefully it will help anyone else having the same issue in the future.