I've been doing some trawling around trying to find out more about the law on these issues. It's confusing, but then we knew that.
Now here is a very clear, but not particularly cheering website from Greenwich in London
The reason it's not cheering is that it is emphatic that if anybody can go to something, than it counts as public whether or not there is an admission charge or not. Which means that sessions in pubs would be included.
Moreover it also says that the two performers rule covers the whole evening, which would make any kind of singaround in a pub illegal. And if you are lucky enough to find a pub which still has a private function room, you've got to have a tight membership policy, with no membership on the night for example.
The only slightly bright point is that the relevant legislation here is said to be "Schedule 12 to the London Government Act 1963" – whereas the legislation outside London is "the Local Government (Miscellaneous Provisions) Act 1982".
That means that it is possible the rest of the country might have different rules, and that maybe these restrictions might not apply.
As for licensed premises (assuming that what is taking place inside them does count as "public entertainment", the legislation here is "Section 182 of the Licensing Act 1964".
So far I haven't been able to track down any of these Acts on the Internet – there's a law now saying that all legislation has to be published on the Net, but it only came in a few years ago, and isn't retrospective.
The impression I get is that most of what we do in the folk music way probably is illegal, and we get away with it because the law turns a blind eye, which is not really satisfactory. Morris dancing in public, for example has to be technically illegal if the dancers haven't got a Public Entertainment Licence…
It does occur to me to wonder whether things like that could possibly stand up in terms of current Human Rights legislation.