So the Chancellor has caved in to the tobacco control industry and reassessed his plan to increase tobacco duty by inflation plus 2% (the so-called tobacco escalator). Instead he has done exactly what Action on Smoking and Health (ASH) lobbied him to do at the beginning of the month. He has put up the price of cigarettes by inflation plus 5%. That's a whopping 8% increase or, in more prosaic terms, an extra 37p on a pack of 20 cigarettes.

Within minutes of yesterday's announcement outraged smokers were posting some fairly vitriolic comments online:

"This is absolutely despicable. This isn't to discourage smoking at all. It's an easy way to raise more money. This is blatant discrimination. We are law abiding citizens doing something that is LEGAL."

"These toffs cannot see that people will turn to the black market. They couldn't give a damn about your health it's just an excuse. Sooner or later they are going to kill the golden goose and I bloody well hope they do."

"Our tobacconist will soon go the way of our pubs and clubs. More empty property on every high street."

"I for one am not surprised - we are sitting ducks - ripe for exploiting by government."

"I am a pensioner and can't afford to do so many things in this miserable country of ours but a drink and a smoke were always part of life's pleasures."

"I hate this bleeding government with a vengeance. Bring on the black market that's what I say. Don't buy [cigarettes] in the shops, buy on the black market, it's cheaper."

And so on.

Smokers are angry, understandably so. This isn't a war on tobacco, it's a war on the consumer, the overwhelming majority of whom are law-abiding people who want nothing more than to be able to buy and consume a legal product in peace without being stigmatised or denormalised or handed draconian penalties when they ignore the government's tendentious and heavy-handed advice to "quit or die."

According to the Chancellor, there is clear evidence that increasing the cost of tobacco encourages smokers to quit and discourages young people from taking it up. I don't disagree. Cost and health considerations are the two major reasons why adult smokers cut down or stop smoking altogether.

But that doesn't make it right to use taxation as a form of social engineering. Educate and inform but don't coerce people to give up a legal product, especially when those hardest hit are the ones who can least afford a substantial increase in taxation - the elderly, the low paid and the unemployed.

Of course there's another side to the story that Osborne, like the tobacco control industry, chooses to ignore. And it's this. There is clear evidence that increasing the cost of tobacco encourages smokers to buy illicit or counterfeit cigarettes on the black market. Figures vary depending on the sample and its location, but in the UK at least one in seven packets of cigarettes is illicit or counterfeit. In some areas that figure is said to be one in three.

Recently I observed a focus group that was discussing illicit and counterfeit cigarettes. The reaction was mild interest bordering on apathy. To this representative group of adults, the sale of illicit and counterfeit cigarettes was a very minor issue. In fact it's a huge problem in Britain and throughout Europe. It is estimated that 190 billion counterfeit cigarettes are produced each year in China alone and 65% of the cigarettes seized in the EU are counterfeit.

These figures reveal the extent to which Western governments - and the British government in particular - are making the problem worse. As night follows day policies like excessive taxation or the introduction of plain packaging will fuel black markets and encourage criminal activity. Smugglers and peddlers of fake fags operate in back streets, outside schools, at car boot sales and other open markets. They don't care who they sell to or what may be in the products they sell. Far from being a harm reduction strategy, increasing tobacco duty puts consumers, including children, at greater risk. How responsible is that?

Meanwhile a substantial number of smokers are choosing quite legitimately to buy their tobacco abroad. Some of them are increasingly defiant about the fact that they are denying the Treasury a small fortune every year and word is getting around about the substantial savings that can be made. Inevitably this has consequences for their friendly neighbourhood store whose owner relies on smokers popping in every day to buy a packet of cigarettes, at which point they will probably buy a newspaper, a pint of milk and a packet of crisps as well.

The reality is this: thanks to the policies of successive governments, the Treasury is losing billions of pounds each year to the smugglers. Millions of cheap cigarettes are available to consumers, including children, many of whom consider cost to be the number one factor when buying cigarettes. And thousands of small retailers are losing business as smokers look elsewhere for a cheaper source of cigarettes.

For whatever reason the Chancellor has decided to ignore these inconvenient truths. Gordon Brown jumped off the tobacco escalator when he saw the damage it was doing. I predict that George Osborne will make a similar leap. For the sake of Britain's economy, our retailers and law-abiding consumers, let's hope it's sooner rather than later.