I remember how chuffed I was when I discovered I could use my Panasonic music centre to tape my mates' vinyl record collections. On just two C120s I recorded the Hawkwind back catalogue and still had space to tack on the best of X-ray Spex (1979 was a musically-confusing year). The music centre was the first mass-produced legal downloader and millions of us created vast vaults of tapes of our favourite bands. I don't remember any heavies from the record industry turning up on my doorstep to threaten me with prosecution for illegal taping. And I don't recall any sanctimonious hectoring about stealing from the mouths of starving artists. They don't make music centres any more. But they do send the men in black round if you try to avoid paying for your albums.

Illegal downloading in the UK has become a massive threat to the music and film industries. In 1997, 78 million singles were sold in the UK; last year, it was just 8.6m. It is estimated that half the population has engaged in some sort of nefarious downloading in the last five years.

So what is being done to stop it and what can you expect if you are caught illegally downloading music, film and TV show files? The first thing to note is that the internet is not the law-free community that its architects had intended when it was dreamt up 30 years ago.In the 1970s and 1980s, record companies were happy to turn a blind eye to the taping of albums, largely because there had to be at least one hard copy purchase before the copying could begin. That is not the case with the huge range of downloading options offered on the internet. In Britain there is an equally-dazzling raft of copyright laws that can be invoked to prosecute offenders.

Download the new Independent Premium app Sharing the full story, not just the headlines

The Copyright, Designs and Patents Act 1988, as amended by the Copyright and Trade Marks (Offences and Enforcement) Act 2002, currently protects copyrighted materials. People who distribute and download copyrighted recordings without permission face civil actions for potentially thousands of pounds of damages. Make no mistake: British copyright law is needlessly strict because it was born in an age that could not have envisaged the challenges of the internet. A recent survey of consumer rights' groups found that the UK was the least consumer-friendly of 16 countries examined in the report. There is, for example, no general "fair use" exception.

Illegal downloading can also constitute a criminal offence if the downloader distributes the material. Infringement of piracy and bootlegging laws can lead to hefty fines and even imprisonment if someone is caught making copies for the purpose of selling or hiring them to others.

The penalties for copyright offences depend on seriousness, but at the higher end of the scale it can lead to an appearance before a magistrate where the sanction for distributing unauthorised files is a fine of up to £5,000 or six months' imprisonment. The worst cases may be sent to the Crown Court, which has the power to impose an unlimited fine and up to 10 years' imprisonment.

Those downloaders who can show that all their music and films copied from the internet are only for personal use will escape the full weight of the criminal law. But that does not mean personal use downloading is legal. Taking a song or film without paying for it is a breach of copyright. The real issue here is detection and the steps the industries are taking to enforce their members' rights. In a recent development, the British Phonographic Industry has started working with big internet service providers such as Virgin. Thanks to the ISPs' access to IP addresses, the BPI and the ISPs can contact individuals suspected of illegal downloading. Stern letters have been sent which issue threats of disconnection if the file sharing is not discontinued. The BPI has even threatened file-sharers with a court appearance.

But as ever with rapid internet developments, it is America which is leading the way in copyright prosecution. In some US states the online infringement of copyrighted music can be punished by up to three years' jail and £150,000 in fines. Repeat offenders can be imprisoned for up to six years. Individuals may be held civilly liable – regardless of whether the activity is for profit – for actual damages or lost profits, or for statutory damages up to £90,000 per infringed copyright. In the USA the industry is putting fake tracks on file-sharing networks to track down your IP.

Bob May, a British PR, found out the hard way how seriously record companies are taking the issue. While copying an unreleased album for work, he accidently left a file-sharing site open on his computer. It was only a few minutes before he realised his mistake but in that time a track had already been downloaded. "A couple of weeks later, on Christmas Day, I got a phone call from a man employed by the record company who wanted to know how the song had been leaked. He called every day for a week and insisted on meeting," May explains. "Two guys in long black coats turned up at my work, trying to intimidate me. We resolved it, but they said if it happened again, they'd use the full force of the law."

But can the iron-fist approach really stop us doing a little bit of illicit downloading? The mind-boggling scope of what is freely available on the internet has brought temptation into the home. Many of us have got used to not paying for our music and films and there is a discernible cultural resistance to making us pay for something that has been has been free for years. The internet has turned us into a nation of freeloaders. When record companies try to tell us we are no better than shoplifters, we don't believe them. You wouldn't go into a record shop and run off with a bag of CDs, the executives complain. But we might if the record or DVD store had been giving away free stuff for years and then suddenly started charging us for it.

And album sales aren't haemorrhaging in the doom-mongering way we have been led to believe. Single sales have dropped, but 28 million more albums were sold last year than a decade ago, including digital sales. Live performances, which account for more than half of the industry's profits, are unaffected by downloads – and may even be boosted by the opportunity they offer for young people on tight budgets to sample the music they might like to hear at a concert. These are not arguments embraced by the music or film industries, which retort that only a small proportion of musicians and film-workers make a comfortable living. Their industries should be treated like other businesses, where not paying for a product or service is not tolerated. Geoff Taylor, the Chief Executive of the BPI, says: "There is not an acceptable level of file-sharing. Musicians need to be paid like everyone else."

While this debate has run back and forth for years, the Government has done little more than keep a watching brief, neither coming to the rescue of the music and film business by enforcing sanctions against illegal downloaders nor offering an amnesty to the guilty. That changed last month with a report from Digital Britain, an organisation set up by the Government to ensure that the nation exploits the internet to its full economic capacity. Launched last year, its aim was to establish a pattern for digital growth in the UK economy.

One of the biggest challenges Digital Britain had to look at was how to balance the interests of the internet user and the industries. The Government now promises to crack down on illegal file-sharing and supports sending warning letters to those making illegal downloads of music and films. Ofcom will also be allowed to release the identities of serial infringers to make it easier for music and film companies to sue them. Lord Carter, the communications minister, said: "We think online piracy is wrong. Creative companies, rights owners and individuals have a right to protection. We wish to put in place a legal framework that provides those protections."

The ISPs are caught in the middle. They protest that it is not their job to police the internet and cutting off customers is bad for business. Nor do they want to be responsible for criminalising 15-year-olds for downloading songs in their bedrooms.

The truth is, if you want to copy music for free without fear of legal action, trawl the junk shops for technology launched in the 1970s as the greatest leap in integrated hi-fi entertainment.