Pub owners have to hold a premises licence. That licence specifies the hours during which the pub may open.
In theory, the local council must grant whatever hours are asked for unless there's a good reason not to. In some areas (e.g. North Norfolk) large numbers of pubs requested 24-hour licensing and, in the absence of objections, were granted those hours. (That's why North Norfolk has more 24-hour licences than anywhere else in the country, despite the fact that no pubs are open for anything like 24 hours).
In other areas some councils have ignored the law (which requires them to examine each licensing application individually) and adopted a 'blanket policy' on licensing hours. So, for example, Havering Council won't allow any pub or bar to have a late licence unless it's within Romford.
The '2 hour extension' simply allows pubs, that aren't normally licensed to stay open late, to do so and leaves those pubs that already have late licenses unaffected.