I think that as in any service or product you need to understand why things cost what they do. I'm a photographer (don't do schools, the idea brings me out in a rash, but basic premise the same) and I can tell you that The £12.50 - £29 you are talking about has to cover the costs of:
Equipment - average INDOORphotographers kit will contain
two high end camera bodies (about 5k for the pair, usually relplaced once every 4 or 5 years)
Between 4 and 8 lenses, varying in price from £600 to £2000 again these get damage through lots of use or updated and need to be replaced from time to time. My own lenses bag would cost me £8k to replace)
Tripod £300
Strobe kit - this is lighting to you and I, now i don't have one of these but i did look into it and prices for a pro setup, rather than an amateur one start at about 1k for a VERY basic low end kit. Most kits of those pro's I know are MUCH more expensive than this.
Decent PC and screen to process images on. I use a (now ancient) mac because when I bought it there wasn't a PC to touch it for image processing quality' it was 2k.
Software. Photoshop currently costs about £600, upgrade every year or so? Lightroom costs About £80 these days I believe, and you need to upgrade regularly, which also necessitates software updates...
Calibration kit, essential to keep your printing colours matched to those you see on screen.£200ish
Training/workshops etc between nothing and £thousands a year depending on the calibre of your photographer.
Then you have the time it takes to do a shoot like this, (i have no idea, but have you ever tried to photograph your OWN kids...takes a while to get them to look at the camera depending on personality...and getting more than one to look at the camera at the same time without one picking their nose/ blinking/ looking the wrong way/ pscowling....welll you get the idea!)
Thennnnn you have the time it takes to upload images to a computer, make sure you have images for ALL the little darlings, edit an image or two of each one, print the proofs for the parents to look at...all in all for a class of 30 kids would take about 4/5 hours to edit if my family shoots are anything to go by!
Then you have to receive the orders, and get them printed, process the payment, chase the late preserve or payees...this is their time and work time needs to be paid for, especially if they employ people to help them...
All in all I'd say £12.50 is a bargain!
I personally never buy school photos, but then I think their soulless and that you should get your local decent photographer to take you and the kids to the park after school and pay them for an individual shoot where you can get some lovely natural shots and pick and choose what you like, but you'd pay them more than £12.50... :o