Pubs face a major hike in licence fees after local councils convinced the government the current system is unsustainable and has cost tax payers £100m more than expected.
The coalition has introduced an amendment into the Police Reform and Social Responsibility Bill after lobbying by the Local Government Association (LGA).
The amendment means councils will be allowed to set fees locally. However there will be a cap on fees, with the Home Office due to consult on this later in the year.
But fears this could see pubs' bills soar have been raised after the LGA said the current system could not be "sustained".
Cllr Nilgun Canver, the LGA's licensing champion, said it was "vital for public protection" that councils can take swift action against individuals and pubs, but "it all costs money".
She added: "Operating the current licensing system has cost council tax payers over £100m more than anticipated and given the current economic climate, could not be sustained."
But Nick Bish, chief executive of the Association of Licensed Multiple Retailers, said the new plans will have a "devastating impact on pubs, bars and restaurants across the country".
He added: "Councils are already facing significant budget cuts so the temptation will be all too great to use licensing fees as a revenue raising exercise."
Martin Rawlings, director of pub & leisure at the British Beer & Pub Association, said: "This does not sit well with the freeze on small business regulation which the Chancellor announced last week.
"In our meetings with the Home Office we have consistently made the point that if the government is intent on introducing locally set fees, then they must be capped in the same way as gaming licence fees. We will continue to lobby hard for a national cap on licensing fees in the regulations."
And licensees are fearing the worst after news of the change on fees. Andy Brooks of the Laughing Fish, Isfield, East Sussex, said his fixed costs were already far too high.
"For our licence fees to go up as well will be a real blow," he said. "It's about time this government and the LGA did something for pus and stopped adding to the difficulties we face."
A Home Office spokeswoman said: "Under our proposal, Licensing Authorities will be able to set the level of the fee within a nationally-set cap. The level of the cap will be set out in regulations which will be consulted on before being introduced."
The Police Reform and Social Responsibility Bill is due to become law next year.