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I fear the problem was that it was a package, lunch and transport so l;egally they were paying for the 'taxi' ride and the council probably was left in a position where they had little option but to act. Equally his insurers may well have taken the view he was acting as a taxi as he was nominally benefiting financially and the vehicle was being used in furtherance of his business so no insurance cover for his pensioners.
I suspect if some of his regulars had provided the service it would have been OK because then it would just have been some one giving a lift.
ps perhaps one should look into whether the whole thing sprung up as a result of scullduggery by some local taxi driver, they can be pretyy effective at 'protecting' their business.