There's nothing I've found anywhere that says you can't teach your granny to fly if you want to. The problem is none of it counts towards license requirements unless you have an FI rating.
If you have a PPL with an FI rating you can teach to PPL standard. Full stop, end of story.
If however you want to be paid it then becomes Aerial Work (unless it's a Microlight or SLMG) for which you need a professional license. And of course if you have a professional license you need a Class 1 medical to go with it. This has sweet fanny adams to do with the fact that you are instructing. It is simply to do with the fact you are being paid.
The exemption for Microlight & SLMG instruction is in the licence privileges in the ANO.
There are additional exemptions that allow you to do Aerial Work in the form of Glider Tugging and Parachute Dropping these are in the "Public Transport and Aerial Work" section.
Given that instruction is given in benign conditions (students don't fly in bad weather) I don't see any reason why there should not be a similar exemption for instruction. The instruction is equally valid if given by a CPL or a PPL so what's the point of the CPL requirement? The notion that the paid instructor needs a Class 1 to ensure that he won't overstrain himself carrying the loot to the bank is laughable.
It would be a great benefit to all to simply make an exemption. It would reduce costs and encourage PPLs who want to instruct to do so because they would be able to recover the cost of obtaining and maintaining their FI rating.
It would defer entry on to the CPL course for those wanting a career in commercial aviation. When they eventually went for the CPL/ATPL they would be more experienced with the extra hours under their belt and get more benefit from the course, and it would do away with the situtation where their expensively earned multi & IR's lapse while they are still building up experience. They could arrive at their interview with freshly minted ratings.
It would give the FTO's reduced costs and less staff turnover.
It would force the hours-builder to raise his game to meet the competition from PPL/FI.
It would reduce the cost of learning to fly because the student would not be forced to meet the cost of the CPL and Class 1 held by the instructor.
Mike