The difference between Apple being able to scan data on your phone vs on their servers comes down to who is able to access your data. In both cases, Apple has a

The difference between Apple being able to scan data on your phone vs on their servers comes down to who is able to access your data. In both cases, Apple has access. But by storing both your data and your keys somewhere in their cloud servers, that data becomes available to governments with the appropriate subpoena, rogue Apple employees and hackers. None of that would be possible with true E2E encryption. It seems plausible to me that Apple might believe some of their privacy conscious users would prefer this situation and hence "privacy" can be considered a plausible explanation for their actions here.