Yeah, the other thing he *could* be doing (the 'pay me extra' thing) is if he knows one of his own pupils is going to cancel/reschedule, or maybe knowing/talking with other driving instructors - hearing about when someone is going to cancel/reschedule. Either way - dodgy & not ethical, IMO.
My instructor who had been doing that job awhile knew a lot of the other instructors, and a lot of the examiners & so forth.
Sounds like your guy is trying to bulk up his income a bit. There are a lot of driving instructors out there - the market is saturated with them! My instructor gave me the impression that it gets kinda difficult to make a steady stream of income from it, because there are simply just so many driving instructors & perhaps not enough pupils to go around. Also a bit of seasonal element to getting business - goes in swings & roundabouts, I guess. It seems to be one of those jobs that - well, say someone gets made redundant or is having a difficult time finding their niche in the working world, so they say - hey! I know! I'll go self-employed & become a driving instructor, and then have a really hard time making a real go of it. There are some good driving instructors, clearly, but there are a lot of dime-a-dozen ones too, IMO.