The answer is that there is nothing legally to stop the head teacher in hiring husband and daughter as long as they are positions that are not in management positions. However there are always potential conflicts of interest if at any time there was an issue around work / competency, other staff may find it very difficult to raise any concerns.
Of much more concern to me would be the actual mechanism that happened to recruit the two family members. Was there a proper recruitment process, with job descriptions etc and was it an open competition for all to apply? Having made a decision to offer the job then did the school carry out all the safeguarding checks which are detailed in the safer-recruitment guidance. So for instance were references taken up.
In many cases like this, this is where the process fails. Governors will not normally be involved in the recruitment of junior staff in the school only the senior leadership team, so they may well not even be aware of the recruitment of family members.
For me, if the safer-recruitment guidelines have been ignored or not correctly followed through, this becomes a significant safeguarding issue. There is also in my experience a significant risk that if the head teacher is bending / breaking the rules here, that there will be other areas of her management which are questionable.
The key for you is to establish whether a proper recruitment process with adverts etc was carried out or was it all arranged around the kitchen table. If you can show that there was no proper recruitment process, then you need to report this along with a question as to whether safer-recruitment processes like references were carried out to what is called the LADO (Local authority designated officer) who is responsible for managing all issues around safeguarding.
If the head has failed to carry out the recruitment process and not done these checks then they could well be looking for another career.