You need a public entertainments licence if more than 2 people are going to perform, paid or unpaid. Pubs have to apply for these just as any other venue does.
I believe changes in the conditions for public entertainment are being considered. Ely Folk Club has just closed after 10 years, because they have had to move velkues several times over the past few years & have not managed to find anywhere appropriate.
One of the biggest problems seems to be that local councils are at liberty to interpret the law as they wish, & also to determine their own scale of charges - although I believe that the charges are only supposed to cover costs, not make a profit - and in some cases the charges are prohibitive.