Hi YorshirePudding,

I'm guessing that you mean ILR (Indefinite Leave to Remain) for Spouse under UK Immigration Rules prior to 9th July 2012 rather than Permanent Residency which is applicable mostly to EEA rules.

Firstly let me just say there's no problem and your wife doesn't need to re-take her English Language Test.

There's a story to this.
Please allow me the chance to list the key sources just to give you a logical official progression to the answers you want, so you can see and understand the evidence.

Here's what the Original Home Office Statement of Intent says (in part):-

..English Language Qualifications
We will accept a range of English language qualifications as evidence that an applicant has met the requirement to hold a B1 level speaking and listening qualification. This will help ensure that all those needing to take a test will be able to find one suitable for their needs and, so far as possible, that no one who already has an English language qualification at B1 or above will be required to take another one. So, for example, a person applying for settlement as a Tier 2 (General) migrant who has already demonstrated a knowledge of English equivalent to B1 level in order to qualify for entry clearance, will not have to take a further test at settlement stage...
I've highlighted the key part which seems to indicate that if B1 level is achieved already then no further tests are required.

However, this wasn't quite clear enough. Maybe as it mentioned Tier 2 but no mention to Spouse.
A number of Freedom of Information questions were formally raised with UKBA, including one from our own Forum Admin Rayna.

Here's one that was asked and received a successful response quoted below in part:-

The fact that an applicant’s qualifying English language certificate had expired would not prevent them from using their pass notification as evidence that they had reached level B1 (CEFR) English for a settlement or British citizenship application. They would not be expected to take another English
Language test, but will need to pass the Life in the UK test.
This now clearly states the Home Office position. Hope that puts your concerns to rest.

Sorry it's a long answer, but I feel it's important to link to the evidence.
Then at least we all know where the answer comes from.

(BTW, if you wife is actually under EEA rules and is in fact making application for Pemanent Residency then she'll need to clear 5 years living in UK as Resident and 1 year under PR (Pemanent Residency)