If you can keep your toddler rear facing whether that means a larger rear facing seat or keeping him in the Joie until the baby outgrows a longer-lasting infant carrier (Cybex and Britax are good for this) that is the safest option, and it's OK for his legs to be bent. Agreed he would have more leg room in an ERF seat like the Axkid ones though and this might reassure your in-laws that continued rear facing is OK, if they are concerned about this.
If you did decide to look at a 123 type seat which is forward facing, I would only get the extended harness if your DC is likely to outgrow the usual harness too early, because these seats tend not to perform as well for safety, and be aware that the performance on 123 seats is hugely variable with some of them scoring poorly and only a few getting a reasonable score (bearing in mind forward facing seats all do worse than rear facing anyway). The better-performing forward facing ones are Britax Advansafix/Evolvafix, Maxi Cosi Titan i-size (all of the i-size versions) and Silver Cross Balance is also good and there is Recaro Tian if you need something without top tether. However, in general, car seats do better when they have one job to do, so long term, a high back booster which is just a high back booster is usually better than one which has been converted from a harnessed seat. There definitely is a place for this kind of seat, but if you have the option to avoid multi-mode seats, then it's worth doing that.
In terms of cost, the larger rear facing seats are quite expensive starting at £245 for the Axkid Move. Sometimes there are offers taking another model down close to that or even lower. The models which cover the newborn stage as well are more expensive. Although the Joie i-Spin 360 doesn't give a perfect fit for a newborn, I think it's one of the better spin seats for accommodating newborns and it's reasonable.
The decent 123 seats are in the £200 region, sometimes you can find an offer around £170-ish.
If you wanted to keep costs down lower than this, £150 will get you Graco Slimfit R129 or Joie Every Stage R129, which both do rear facing up to 105cm and then convert to booster seats. They are OK in terms of safety score. Not the best, not the worst. And as you have found, the 25kg harness 123 type seats are in the £100-150 region too, so a more reasonable option for higher centile children if ERF is out of your budget.
If you want to keep your 3yo in the Joie spin and get a cheaper seat for the new baby to tide them over for a year or so, you could look at Joie Juva, Britax Baby-Safe Core, Graco Snugessentials i-size, Recaro Avan is on clearance in a few places and there is always an older Cybex model on offer somewhere - all of these are long-lasting, with good safety. The Britax, Recaro and Cybex seats are compatible with most pushchairs if you would like that as a feature (it is quite useful with 2 children IME) while the Joie and Graco seats are cheaper.
Long term, if you go for the infant carrier option, you will definitely need 2x high back boosters later on as your children will be in this stage at the same time. Whereas with a 123 seat or ERF seat, it's possible that you'll only need one HBB later depending on how quickly they grow and how long your chosen seat lasts.