"Our economic regeneration team has been sitting down and figuring out how to get this application to cut mustard"
Well, you could always laminate the application form – which would make it sturdier and possibly also mustard-proof. Or else you could print the application directly on to a knife or other cutting tool.
Seriously, all it took was for the idiom to be used slightly unusually ('cut mustard' instead of 'cut the mustard') and on first glance I read it literally rather than idiomatically. That's the danger of idioms – apart from totally confusing non-native speakers, of course.
And if you are interested in the origins of this idiom, the World Wide Words page on 'cut the mustard' is a good place to start – or else check out Yahoo! Answers for some alternative explanations.