It's too late to worry about NI contributions if she's 'live-in gran' age, she'll never get enough for state pension. This isn't the end of the world, loads of people don't have enough, they claim pension credits and survive.
If she can get her earnings up to £155/week she will be eligible for housing benefit and tax credits (or universal credit). It wouldn't take much for her to be independent.
I know lots of people on the thread are adamant that this should be reported as slavery but I'm not so sure. Technically it is, and your nasty friend is breaking all sorts of laws. If she'd been paying her, this woman could probably have applied for permanent residence by now, so that's shitty in itself.
What would people's attitudes be though if this woman was actually nasty friend's mother and an actual 'live-in gran'? Would anybody bat an eyelid at the arrangement, given they are both happy with it? Would this woman really thank you if you 'rescued' her and she was helped to return 'home'?
She is definitely vulnerable and being exploited. Doing what's best for her might mean taking a softer approach and not jumping straight to the most drastic option.
If it were me, I'd string nasty friend along just long enough to properly befriend this woman and persuade her to get advice for herself.