Pringle,
I can see the point you are making, but I'm not convinced that PPL instructors would lead to an erosion of terms and conditions.
When I started instructing I just had enough money to pay for an instructor course having been flying as a hobby for a number of years. I considered myself a "career instructor", that being my only aim, and spent six years and about 3500hrs instructing full time at a flying club before I even obtained my first commercial licence. By that time I was teaching night, multi, IMC and aerobatics as well as abinitio, all of those instructor ratings having been paid for by the flying club (because they knew that with no CPL I wasn't about to disappear quickly) and I was on a salary of £14k, which at the time compared well to that earned by teachers, policemen etc, averaged about £25 per hour looking at the hours flown each year, and would have allowed me to buy a house based on a mortgage of 3 times salary (just).
Bear in mind that was 16 years ago, and I think it is fair to say that being an instructor with a PPL didn't mean I would accept poor terms and conditions - I couldn't say "I'll instruct for £10 per hr because I need the hours to get a job with an airline" - I needed a decent salary to pay the bills and the rent and I was lucky enough to find a club to instruct at where that was possible.
Then as now there were those who were using it as a stepping stone to the airlines, and I would offer the opinion that it is those people who have always driven down terms and conditions, irrespective of what licence their instructor rating was attached to. I don't know the answer to your point about Ts and Cs, but I think that a few part time instructors with PPLs won't make it any worse, nor would full time ones for the same reasons I had when I was doing it.