Dr Eamonn Butler is Director of the Adam Smith Institute.

At Prime Minister’s Question Time yesterday, Ed Miliband banged on (again) about tax avoidance. And in the Opposition Day Debate on the same subject, Ed Balls spelled out his party’s plans to ‘introduce tougher penalties for those who are caught avoiding tax’. Pardon? Did you say penalties? For what? Tax avoidance – organising your affairs, within the tax rules, such that you pay less tax – is perfectly legal (or at least, it should be…but read on). It is tax evasion – concealing or under-declaring your income or taxable assets so as to escape tax  – that is, rightly, illegal.

However, in their werewolf greed (to use Marx’s colourful description of capitalists) to maximise the revenue of a government that now consumes nearly half the national income and then borrows still more, our politicians have deliberately conflated the two. Which allows them glibly to talk about ‘penalties’ for something that is perfectly legal, but which they don’t much like. Staying within the law, but structuring your affairs so as to pay less tax than you might otherwise do, is portrayed as no less reprehensible as criminally deceiving the tax authorities. We’re all in this together, after all, and the government needs the money. So now, thanks to this sleight-of-hand (of which George Osborne is just as guilty), penalties appropriate to the criminal activity are being subtly extended into the legal activity. Indeed, without any real debate on the subject, they have already been extended far beyond the Rule of Law.

The US Court of Appeals judge, Learned Hand, famously explained the principle back in 1935:

“Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the Treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.”

Quite. As the Institute of Chartered Accountants pointed out last autumn, Britain has “one of the longest tax codes in the world and it continues to grow considerably with each year.” With such a forest of rules, it is easy for tax avoiders – and more seriously, tax evaders – to find a thicket to hide in. But here are our politicians, Government and Opposition, planting more trees instead of clearing out the undergrowth. And, of course, declaring individuals and companies who do try to minimise their taxes to be failing in their patriotic duty. Justice Learned Hand would have given them short shrift.

Pure politics has added to this wilful conflation of legal and illegal activities. Have tax-avoiders been funding the Tory Party? How easy it has become to suggest that they are not only unpatriotic but vaguely criminal. Even the Prime Minister’s wife has been caught up in this name-calling, after the company she works for moved its finances to Guernsey: but as I pointed out in The Observer this week, that is not illegal, and companies have a legal duty to safeguard their shareholders’ funds. If Britain’s taxes are so high and so unjust that people move themselves or their affairs abroad, it is the policymakers’ fault, not theirs. But again, the predictable response – and not just from the Labour Party in Britain, but from the European Commission and the OECD rich-country club, is to build a sort of Berlin Tax Wall to prevent anyone leaving. They want to shut down the low-tax jurisdictions that are the sole safety valve against politicians having the monopoly power to tax people as much as they want, backed by the threat of imprisonment.

Indeed, it has gone further, with measures that are so discordant with the Rule of Law that, in this 800th anniversary year of Magna Carta, politicians should be red-faced about them (but aren’t).

How much tax are you required to pay? Well, as much as the law demands, obviously. But precisely because the tax code is so complex, through arranging your affairs in different but quite legitimate ways, that could be just about any old amount. As long as you remain within the regulations, who can gainsay your figure?

Well, HM Revenue and Customs thinks it can. It can (and does) argue that you have deliberately adjusted your affairs for the purpose of reducing your tax liability. Armed with the cross-party political bluster against ‘aggressive tax avoidance’ (which seems to mean any attempt to minimise your taxes), HMRC can simply re-work your numbers in some different way, in order to show that you ‘should’ have been paying more. Your way of accounting might be just as legal as theirs, but it is they who have the jail keys in their pocket.

And there is no point in complaining that you have broken no law, and have neither legal or moral obligation to pay more. HMRC can just take the money from your bank account. Then, unfortunately, the onus is on you to prove HMRC wrong by action in the courts. Of course, their jingling pockets are more capacious than yours. And the very fact that a large sum has been lifted suddenly from your accounts might leave you unable to pay your workers or suppliers, forcing you into bankruptcy and in no position to initiate court action against anyone.

Predictably, HMRC and the Chancellor say that such draconian powers will be used sparingly, in exceptional cases, only after repeated warnings, and only with proper authorisation. That is tosh, of course. Everyone knows it is a one-sided contest, and there is no reason for HMRC, which seems greedier for revenue than any capitalist, to pull any of its punches. There is too long a history of officials being given ‘exceptional’ or ’emergency’ powers that they then use against anyone they like, and in cases that the powers were never designed for. Before long, the ‘exceptional’ power becomes the norm, on which the next encroachment is built.

The barons 800 years ago took up arms against King John largely because of his high and arbitrary taxes, extracted by capricious officials. But even they would be shocked by the tax tyranny that we live under today.