Big, bad companies are firmly in the sights of politicians.  Last week, Labour Party leader Ed Miliband announced a headline grabbing scheme to fund cancer testing by a levy on the profits of tobacco firms.  This follows earlier commitments to pay for youth training by taxing bankers’ bonuses and to fund expanded NHS spending with a mansion tax.  Labour has form on such policies.  When the party was returned to office in 1997, its New Deal for the young unemployed was paid for by a levy on privatised utility companies.

The European Commission is targeting alleged tax avoidance by Google.  It is not difficult to see why this company joins Starbucks and Amazon in the dock.  All three are American businesses with a high consumer profile.

And then there are the fines.  For US banks, laying out billions to settle allegations of past malpractice, often without acknowledgement of wrongdoing, has become a regular cost of business.  Even so, the $9bn extracted from BNP Paribas was eye-watering.  It is now common practice for several regulatory agencies to share the loot.   Pharmaceutical companies are also being shaken down, and campaigners are aiming at other targets, such as those businesses which feed obesity.   State attorneys have jumped on the bandwagon, their governments eyeing a new source of revenue to supplement the existing tobacco settlement

Europe is only getting into its stride.  Chancellor of the Exchequer, George Osborne, has announced that the fines levied on banks for their part in fixing LIBOR rates will go to  armed forces charities. Larger penalties still will likely be imposed for abuse in the foreign exchange market.

There are good reasons for state action in all these areas of business misconduct.  Financial abuses should be punished.  Corporation tax avoidance by multinational companies has reached unacceptable levels.  Tobacco companies behaved badly, and their products have caused great social damage. 

      But announcing ad hoc measures aimed against companies which are  in the news is not the right way to deal with these issues. The amounts extracted generally appear arbitrary in amount.   The random incidence of penalties and the distant relationship between the sums obtained from the corporation and the individuals responsible for the abuse means that the deterrent effect on future conduct is weak.

        The process more and resembles an armed gang roaming the streets, picking on unpopular individuals and extorting money from them, with strangers particularly liable to assault..  The gang then justifies its bullying by distributing some of the proceeds to its needy friends. 

       There are compelling reasons why advanced societies have abandoned the rule of the vigilante in favour of careful, dispassionate, deliberative processes. Proper judicial proceedings are free of the pressures of twenty-four hours news reporting and grandstanding politicians. Frontier justice often emerges when the existing law is too slow and cumbersome, and too much in thrall to established interests, to respond to the legitimate anger of the public – and this is a fair characterisation of what has happened in finance.  But the right answer is to reform the law, not to act outside it.

There are similarly compelling reasons why, as far as possible, tax should be based on general principles applicable to all individuals and companies, and not devised with particular targets in mind.  There is danger, too, in hypothecating tax revenues to popular items of public expenditure – like armed forces charities or cancer testing.  We also need tax revenues for unglamorous items of spending –  such as effective tax collection and proper regulation of business –  and a considered mechanism for assessing priorities among them. Revenue hypothecation is always opposed by the fiscally prudent because it undermines effective public expenditure control.

       The erosion of constitutional proprieties in favour of  populist slogans is a danger to which all democracies are vulnerable. More vigilance than ever is needed to guard against it.