James Provan, Conservative Member of the European Parliament for the South East of England, said: "They should be finding ways to stop smuggling rather than harassing law-abiding citizens."
And he added: "What is the result of their policy? A dramatic increase in smuggling and enormous losses in the Exchequer."
He said that people bringing back tax-paid alcohol and tobacco from their holidays abroad were accused of being "smugglers and criminals."
"Their goods and cars are seized and confiscated, all because the Labour Government refuses to recognise that their policies have failed.
"The government's policy of increasing tobacco and alcohol taxes every year is now encouraging smuggling and there is no doubt that smugglers of vast quantities of these goods deprive the British taxpayer of an estimated £500 million a year. The answer is not in harassing British people bringing back legitimate goods for their own use, but in making our excise duties more competitive.
"The Single European Market is an attempt to allow competitive pricing and competitive taxation. But while 20 cigarettes cost nearly £4.50 in England, in Belgium the price is £1.90.
"As a result of this ridiculously high level of taxes, the Government is losing money every year through smuggling. Their policies are costing us money and in the meantime we are treated like criminals by our own government.
"The wide differences in tobacco and alcohol taxes are the main reason criminals have turned their attention to smuggling."
He claimed that up to 20% of cigarettes and 11% of beer on the British market was smuggled in.
"The government's answer to this has been twofold: first they raise taxes yet again and then they arrest and confiscate the legal goods of British citizens. This is a nonsense. Even the European Commission's threat to haul Britain before the European Court has been ignored by Blair's government.
"Competition in taxation is the only way to keep taxes down and is to be greatly preferred to harmonisation."