In the UK "Club" the aircraft are operated for profit. If pilot X is not current then they are unable to fly. Thus the club can not profit. If the CFI tells a PPL to fly with pilot X then the club is making a profit from that PPL's flying (even if it is as a passenger). That makes it public transport and illegal.
But we aren't discussing pilots who are non-current legally. We're discussing pilots who haven't flown for a bit, who the club or insurance company requires to fly with a safety pilot for their own private reasons. The PPL who is the safety pilot is a passenger. And nowhere have I seen it stated that passengers can't be paid. It's no different to my offering you an aerial lift to London, if you need to get there for your work, and your company paying you an hourly rate while you're travelling. Or, for an even more precise analogy, you offer to let me fly you to London in your aircraft, the condition being that I give you the lift.
Another way to look at the checkout regardless of the "club" set-up is - Can one seriously make a club rule that a pilot is not competent to fly the aircraft if they have not flown during the previous 28 days - then turn round and send them flying with a passenger? Clearly, the two are not compatible.
No, in theory they're not. But in practice those pilots who haven't flown for 28 days comprise everyone from very new PPLs to people who've been flying for years. For instance, just after I finished my CPL(H) flying course I ended up not flying for 5 weeks. Was I seriously non-current, after over 100 rotary flying hours in a year, finishing with an intensive course and test? But the club's insurance rules were that I had to fly with an instructor before I could self-fly hire. So if the CFI and/or insurance allow such people to fly with a "passenger" just to check that things are OK, it sounds like common sense to me. Now of course, that could be mis-used, but that's not the point.
Let's not mix up two issues here. Sending pilots who haven't flown for a while up with another PPL may or may not be sensible. But to repeat myself, I SIMPLY CANNOT SEE HOW IT CAN BE ILLEGAL. And if it is, I want to know where I can see that in writing.