It's one of those "and finally" stories that get run on quiet news days. The hotel's actions MAY be legal from a contractual point of view, but are certainly not acceptable. The credit card company will not allow this charge to stand and will refund the money and make a chargeback to the hotel. Obviously the place is a dump, but the owners may feel that for £36 a night, that's par for the course. It would be difficult to market the hotel as a "cheap dive - you get what you pay for" and yet patently, there is a market for £36 hotels.
I stayed in one recently (as the area was booked out). It was spectacularly poor but at Euro 46 for two persons, I didn't feel the need to warn the world about it. I did check their Trip Advisor page for entertainment and sure enough, there were some very unhappy people on there.... what DID they expect??