Are there prayers and religious observation at the fete?
Is it actually titled “church” or “village” or just “fete” which has become ‘thought of’ as a church fete?
Is it an event exclusive for disciples of the post Reformation Anglican Church to the exclusion of all non believers?
If NO, to any / all of the above then it is not a religious activity (and ‘supposedly’) ineligible for PC financial support but rather it is a non denominational community event, open to all without fear or favour which delivers community recreation, cohesion and enjoyment.
It may be facilitated within an historic building, probably at the geographic, cultural and historic centre of the community which just happens to be colloquially known as a church, but that doesn’t automatically disqualify it from PC support.
Tag it as community engagement in your appropriate budget header and crack on.
Imagine if all the T&P councils that have contributed time, effort, money to the Coronation had shut their support down on the basis that the Sovereign is the titular head of the Church of England, Defender of the Faith - which is of course a non inclusive single denomination role
If the PC can muster a majority vote to support a village fete, don’t get too bogged down in who is delivering the output or even where any funds generated ultimately end up If there is ‘reasonable’ due diligence and confidence in the management / organisation of the facilitator, just eat the red herring which is this apparent aversion to anything culturally or historically English