The issue with bargain basement Y having more squashed seats than standard Y is that UK APD at the standard rate only applies to the lowest standard of accommodation - everything above gets the huge higher rate. That came from F-C-Y days, but if you now have C-Y-Squashed Y then the higher rate applies to the regular Y.
Regarding the squeezing down of seats, it is a universal mantra among its advocates that nobody is put off by it, they are only interested in the lowest fare. It follows therefore that all the effort Boeing are putting in to making the 777X cabin interior 6" wider by some reduction of the cabin walls would be of no interest to such operators. They will only be interested if it allows, with other squashing measures, another seat to go in, at 3-5-3.
Incidentally, that "lowest fares" bit about all of this is a Pinocchio moment as well. With several carriers that have now done this with seating, I notice not the slightest reduction in fares compared to before. in fact the opposite.