Hundreds of millions of pounds worth of fees paid each year to councils by restaurants, bars and shops could be unlawful, according to a barrister.
Philip Kolvin QC, who last month scored a victory against Westminster City Council which was forced to return up to £2m of unlawful licensing fees to a consortium of Soho adult shops, said the fees paid by other venues could be similarly unlawful.
The Court of Appeal ruling showed that up to 600,000 licensees across Britain are paying licence costs that are unlawful as they include elements that are additional to the cost of the authorisation process itself, according to Kolvin.
The ruling affects all places that sell alcohol, as well restaurants that open late.
He said: "In Britain licence fees were set by the Government in 2005, but European legislation introduced in 2006 has made the Fees Regulations unlawful. This is because Europe said such charges should only include the basic costs of the process. However, the fees in Britain contain far more than this, such as elements covering the cost of the enforcement regime. While a small pub may only pay £350 for its annual drinks licence and be entitled to a relatively modest recovery, large venues pay up to £32,000 each per year, even though it is basically the same process.
"This is potentially good news for the drinks and hospitality sector, but bad news for local councils as the sums of money at stake are very large. The Government is going to have to act quickly to sort this situation out. If it does not, the potential is that large venues, trade associations and pub chains will force the Government's hand in court, to get their fees reduced and potentially to get money back. Even for small shops and pubs, there may be the opportunity for class actions brought through industry solicitors and trade associations.
"The upshot for councils, and ultimately local taxpayers is likely to be a reduction of income from the alcohol and entertainment industry, which is unfortunate at a time when they are having to make heavy cuts. But it is a direct impact of European law, which protects the providers of services from having to pay excessive costs and penalties, the bill for which is ultimately paid by their customers."