I thought there was a law banning Subadise routes competing with commercial ones?
The position isn't entirely black and white - the 1985 Transport Act included a duty on local authorities "not to inhibit competition" although the 2000 Transport Act gave authorities powers to set transport policies and procure services that met those policies if the commercial market wasn't.
Obviously this applies only to local transport authorities, so if a service is funded by a private developer or business park owner etc then they can set their own criteria.
Where you get a very infrequent commercial service, it's probably OK for an authority to fill some of the gaps. Or to contract a service at times of day / week the commercial service doesn't run (often evenings / Sundays).
But if you had (for example) a commercial service every half hour, it might be dubious if the authority put on a contracted service on the other quarters. And it's more complicated where a contracted service shares a bit of road with a commercial service, but the contracted service is the only route to a point beyond or off the line of the commercial route. (most councils will insist on the contracted operators' fares not undercutting the commercial operator on any shared bit of route for example.)
I have no idea just what's happened in this case, but it is possible that the decision to run commercially may have been made after the local council/s involved entered in to a contract - and I don't know what notice period there is in any such contract. Some councils will allow a situation like this a few months to settle down.
While I've absolutely no involvement or knowledge in what's happened here, it was not unknown in the earlier days of deregulation for a tendered service to be awarded to operator A, then operator B would register some / all of it commercially in the hope that council would terminate their contract. De-registration of some or all of operator B's commercial service would usually follow. Broadly, the industry has grown up a bit since then and I would be a bit surprised if that's what has happened here.