I reckon the following new paragraphs in Schedule 1 (drafted by me) might fix it.

"Insert new paragraphs 10A, 10B, 10C and 10D in Schedule 1 Part 1

Unamplified Music incidental to certain other activities.

10A        The provision of entertainment consisting of the performance of live music (and not comprising or including the playing of recorded music) is not to be regarded as the provision of regulated entertainment for the purposes of this Act, if and to the extent that the conditions specified in paragraph 10B below are satisfied, if and to the extent that it is incidental to some other activity which is not itself –
(1)        a description of entertainment falling within paragraph 2, or
(2)        the provision of entertainment facilities.

10B        The conditions referred to in paragraph 10A above are: -
(1)        the other activity referred to in paragraph 10A above is the subject of and being undertaken in accordance with a licence granted under this Act; and
(2)        the number of persons undertaking the activity referred to in sub-paragraph (a) above does not exceed 100 or such other number of persons permitted to be present in accordance with the licence also referred to in sub-paragraph (a) above; and
(3)        subject to paragraph 10C below the live music being performed as aforesaid is not in whole or part by means or with the assistance of (or by means or with the assistance of a system comprising or including) electrical or electronic amplification: -
(a)        provided; nor
(b)        made more readily audible; nor
(c)        made audible or more readily audible in any other place than the place or part of a place in which the performance is occurring;

10C        For the purposes of paragraph 10B(3) above: -
(1)        the live performance of music by the playing of a portable musical keyboard device which performance is made audible solely through loudspeakers contained wholly within the device in question shall be treated as if electric or electronic amplification were not used therein; and
(2)        a musical keyboard device shall be deemed not to be portable unless: -
(a)        it is brought to the place of performance solely for the purposes of the performance in question and removed therefrom within one after the performance in question; and
(b)        the rated output power of the amplification therein shall not exceed 20 watts (RMS) per channel and the number of channels shall not exceed two.

10D        The Secretary of State may by order delete add to (either by way of addition to a provision or the addition of another provision) take from alter adapt and/or amend paragraphs 5 to 10C above."