This is given as the real reason for this problem in the article, though the council official's quote does not confirm that:
Now the council has decided not to reinstate the scheme, unless it is persuaded otherwise over the next six weeks.
It is due to recently published guidance on the impact of Public Service Vehicles Accessibility Regulations (PSVAR) on Home to School Transport.
PSVAR only allows seats to be sold on vehicles, with more than 22 seats, if it is wheelchair accessible. But, the majority of the vehicles currently used by the council do not comply with this.
This all comes down to the pre-existing definitions of the different species of bus/coach operation in the regulations, which are used in the PSVAR regulations. These, as is customary, are based on criteria that seemed to define the right categories at the time but were and are not the really important ones. In this case it turns out that whether passengers are carried "at separate fares" matters, and that depends on the details of the contract with the council where they pay the whole cost. But, according to this legal guidance
from transportlawyer.co.uk:
The general position is that where transport is provided to the user free of charge (which is the case for a number of schoolchildren who are eligible for free travel), then the regulations do not apply. However, it is not uncommon for local authorities to sell spare seats on vehicles to fee-paying passengers. Where this is the case, a separate fare is paid, thus the journey will fall in-scope (assuming that the other features of the journey make it a local or scheduled service – which, for many home to school journeys is likely to be the case). It only requires one passenger paying a separate fare to require the vehicle to comply with the regulations.
Apparently
DfT» are pondering a further transitional exemption.