This is a weird setup that, at first glance, shouldn't work. But it obviously does work, so deserves thinking about. So I did...
The first issue is that the interface between the WAN socket of the HH and the modem involves PPPoE, and isn't an IP protocol in the standard way of thinking. It doesn't use IP addresses, so doesn't use those to find Ethernet MAC addresses.
I think what is happening is that the router makes use of PPPoE discovery to find the modem. This involves broadcast packets at the Ethernet MAC level. Once discovered, the router and modem communicate directly with MAC-addressed Ethernet frames (not IP-addressed frames). With switches in between, the packets should only be seen on the appropriate ports (modem, HH WAN port, and the inter-switch trunk).
Traffic from the PC to the router is with IP-based packets. The IP layers of the software stack uses ARP to convert from IP addresses to Ethernet MAC addresses; the switches ensure that these packets on go through the appropriate ports (PC, HH LAN port, and the inter-switch trunk).
I think this answers @loonylion's concern. The modem isn't accessible to an IP network layer, so the PC can't masquerade with the modem's IP address ... it doesn't have one.
The Openreach modem, in bridge mode, doesn't have a DHCP server.
If there are security concerns, then "smart" switches with minimal management features could be used to create two VLANs. One VLAN with just the HH WAN port and the modem will keep the PPPoE frames entirely separate from IP packets.