In a bitter blow to beer lovers and the Treasury alike, John Smith's Extra Smooth ale is to reduce its alcohol content to save millions in tax.

The beer - owned by Dutch drinks giant Heineken - will be made weaker in a bid to avoid the government's beer duty escalator, which punishes higher alcohol beers and adds inflation plus 2% to duty bills.

Since its introduction in 2008, the controversial tax has seen prices rocket by just under 40% in five years - well above inflation.

The British Beer and Pub Association (BBPA) blames the escalator for plummeting sales.

And in a double whammy, the company said while it will reduce alcohol levels from 3.8% to 3.6%, it plans to raise the price to wholesalers by 2.5p a pint.

The Treasury now raises some £9bn per year through the UK's beer industry - at the same time as British pubs are closing at record rates.

Pressure group Campaign for Real Ale (CAMRA), says tax now accounts for a third of the price of a stronger pint of beer.

CAMRA has called on the government to scrap the beer duty escalator. The bid has been backed by 58 all-party MPs who unanimously backed the organisation's bid to review the beer duty escalator and present back before Budget 2013.

It has also amassed 100,000 signatures on an e-petition.