As Andrew Yates reports, the decision could cause hundreds of pubs to close, with the loss of thousands of jobs.
Bobby Neame, chairman of the Kent brewer, said yesterday: "We are very disappointed but in some ways this was expected. If the Government had been found at fault it would have caused a lot of disruption."
However, Shepherd Neame's fight is likely to continue. "We are considering an appeal. We have already had to shut pubs and this may well cause hundreds of other pubs to close," said Mr Neame.
Shepherd Neame claims that the rise in excise duty will exacerbate the growing problems caused by the flood of beers and wines being imported from continental Europe.
Its legal battle was aimed at highlighting the plight of Britain's brewers, which have been hammered by the so-called "Calais run", with a surge in the numbers of people hopping across the Channel to bring back crates of cheap beer.
British excise duties are more than six times higher than in France and Germany and an estimated 1.3 million pints are being imported from mainland Europe every day, equivalent to about 5 per cent of the UK's total beer consumption.
The situation has got so bad than one in every three pints of beer drunk in Kent is now thought to come from Calais.
The explosion of the smuggling industry has also dented sales. Customs and Excise estimate they lost a massive pounds 120m in revenues due to smuggling in 1996.
Shepherd Neame has been one of the brewers worst hit by the flood of imports and has been forced to close 50 pubs. Other regional brewers and pub owners, including Morland and Fuller, Smith & Turner, whose trade has also been affected by the huge rise in imported drinks, have lent their support to Shepherd Neame's action.
The Kent brewer launched its action in the High Court last year after Gordon Brown decided in his July Budget to impose an increase of 3 per cent on excise duty for beer from 1 January, equivalent to 1p a pint. It claimed the move amounted to a "threat to British beer".
It wanted the Government's decision to raise excise duty on a pint declared in breach of European law, which required states to harmonise duties across the European Union. However, two High Court judges ruled out Shepherd Neame's application to have the issue referred to the European Court of Justice.
Dawn Primarolo, Financial Secretary to the Treasury, welcomed the court's decision.
She said: "This decision upholds the important principle that Parliament can legitimately set excise duties in the UK, subject to minimum rates agreed with our EU partners. Customs and Excise will continue to collect beer duty at the new rate."