Since allowances are taxed to some extent as benefits in kind, unpaid work with allowances would indeed be permissible per the first two paragraphs of the Act. While contractually classed as "allowances", they are in fact not treated as such by HRMC, which determines them to be partly benefits in kind ("BIKs").
In essence, without a valuation of BiKs (which allowances are partly treated as, and partly not, depending upon the HMRC assessment), then nobody can say whether or not it is a legal move.
National Minimum Wage Act:
National Minimum Wage Act 1998 (c. 39)
In essence, we are all talking out our rear, so should resist from opining on the matter.
The London City operation being underwritten by Barclays Capital is, I assure you, not a rumour.