I'm sure the odd expensive taxi here and there in York won't harm the pocket of anyone, just like it doesn't in Leeds. The fact is why should frequent bus users not wanting those locations have to go through all the traffic jams just for the odd occasional person wanting those locations when they can walk to the nearest bus stop for the hospital, walk to the train station or get a taxi?
Not everyone is in a position to get a taxi. You might be, the next person might not be. Not everyone is able to walk far, especially those who frequently visit the hospital, so are now faced with a longer journey travelling via the loop.
They could have consulted but what would that have done. Most passengers aren't adversely affected (and arguably benefit) so the only ones likely to say anything would be the few that are.
If you take the 21, the majority of people don't use the loop through Middlethorpe Grove. The bus is often delayed through there due to bad parking and sometimes has to skip the loop because of this. If the bus skipped the loop, most people would be positively affected by faster journey times. Yet the minority who now lose the bus service from outside their house will understandably complain and would participate in a consultation to protest this decision.
Likewise in South Bank, the purpose of the 21 serving South Bank is to connect it with Askham Bar Tesco. South Bank already has a more frequent bus into York with the 11/11A and the infrequency of the 21 leads people to getting one of the many buses from Tadcaster Road to Askham Bar Tesco. Again, you could create significant time savings by cutting it out (like the first journey of the day into York) but a small minority would complain that they no longer have a bus connection to the Superstore.
I've found when using the 21 that the busiest stop is Askham Bar Tesco, at least in York. This is again emphasised by the last bus from York starting out at Tesco.
I'm not advocating for either of these deviations to the route to be cut, but just showing that any revision to the route would see the minority affected understandably protest if a consultation was provided. After all, that's going to be one of the downsides to any consultation. Those who see little to no change see no purpose in participating leading to a minority being heard. Do you stop carrying out consultations? Well not really...
If they got together and established a common loop it would like the City Loop Nottingham City Transport operate on many services.
If there was an agreement that rural services (like the 412 & 21 among others) were to deviate from the station via a loop with the option for people to transfer onto other buses with their ticket at no additional charge, that would inconvenience people less. There's a very good bus service from Blossom Street to the Station (also quite good from Victoria Bar in the case of the 21) and this would allow the station to still be served (in principle) by these services on their way to York. Its the integration that York needs to provide a connected service.