OP, was the pub you and your friend were in the type of place, rural/in a holiday/camping route? If the pub carried on serving them, whilst they lost control of their children, then it acted illegally.
What happened when the child dipped it's dummy? The Landlord has just broken his licencing agreement.
Tbh, it sounds, far fetched. The rest of you shouldn't have sat and watched.
My concern with overstrict rules is that we've got Weatherspoons buying up pubs, or putting pubs, out of business and then they completely change the pub they've bought. I've known them to buy family pubs and turn them into hangouts for scumbags. But before that's happened, they've put smaller restaurants/cafes out of business, so there's no alternatives.
There's middle ground, when it comes to children. The link includes staying sat down outside. The Adults don't stay sat down, why can't the children stand up, to stretch their legs? I agree with the times, but i live in a big enough place that i can choose a pub that doesn't serve food and have Families in.
This stood out in the link "pubs, cafes and restaurants should be for the whole community". I don't think that they need to be.