After every test case, the media assume the worst is over: that Britain's libel laws, designed to protect the powerful from public scrutiny, have been fanged, and freedom of speech will no longer be treated like a crime. And then it gets worse.

On the website of Craig Murray, the former British ambassador to Uzbekistan, you can read a letter his publishers have received from the law firm Schillings. It contains something I have never seen before: a threatened injunction against a book they haven't read and that won't be published until September. Acting on behalf of the "private security contractor" Tim Spicer, Schillings gave the publishers three days (the deadline was last Friday) to guarantee that the book does not defame its client, or face "an injunction to restrain publication".

No publisher can afford to ignore a letter like this. Though libel is a civil rather than a criminal matter in this country, the consequences can be much graver than most criminal convictions. I would rather go to prison for a few weeks for committing a crime than spend five years fighting a libel case, then lose my house and my savings. It is better to be caught mugging than to be caught speaking freely.

If someone launches a sustained and malicious campaign of false charges against another person, and that person is given no opportunity to demonstrate that he is being wronged, he should be allowed to seek redress. But the libel laws of England and Wales are tilted so heavily against the defendant and involve such monumental costs that they amount, in effect, to censorship by private interests: a sedition law for the exclusive use of millionaires. While in the United States the plaintiff must prove that the claims against him are false, in English law the defendants' claims are presumed false until proven otherwise: he has to demonstrate his innocence. If his defence fails, he must pay both costs and damages. The plaintiff's lawyers make little attempt to limit their costs: the partners at one well-known firm charge £750 an hour. The bill can rise to millions.

Perhaps you don't live in England or Wales, so you think this has nothing to do with you. You're wrong. English libel law now applies to everyone on Earth. Make any accusation, anywhere in the world, and if the subject can demonstrate that a single person in England or Wales has read it, you could be sued here for every penny, cent, rouble, rupee or renminbi you possess. The internet and the global nature of publishing ensure that these medieval laws have become the most powerful extra-territorial legislation ever drafted.

Yesterday two men with whom I seldom agree, the US senators Arlen Specter and Joe Lieberman, launched a new bill, called the Free Speech Protection Act, to defend US citizens against English libel law. Our laws, they argue, threaten the "free-flowing marketplace of ideas" which "enables the ideals of democracy to defeat the totalitarian vision of al-Qaida and other terrorist organisations". English libel law is an international menace, a national disgrace, a pre-democratic anachronism. It defends crooks, terrorists and tyrants from investigation. It threatens the free speech of people all over the world and causes untold damage to the reputation of this country. And neither the British government nor the British parliament gives a damn.

Every few years the newspapers fill with optimistic headlines about the death of these repressive laws. In 1999, they were deemed to have been neutralised by the case of Reynolds v Times Newspapers, when the law lords established that a journalist could use the defence of public interest if he had acted responsibly, even if he could not prove his allegations. But the criteria for responsible journalism were so narrowly defined that this defence has seldom succeeded.

In 2006 the laws were deemed to have died again when the Wall Street Journal succeeded in using the Reynolds defence in the House of Lords, overturning a case brought by the Saudi Arabian businessman Mohammed Jameel. Last year they died once more when the court of appeal found that the investigative journalist Graeme McLagan had acted responsibly when he claimed that a former police officer had taken a bribe from a criminal. But today Britain's libel lawyers are more active than ever before.

They have developed a lucrative new line in shutting down websites. This is the second time, for example, that Craig Murray has come to the attention of Schillings. Last year it closed his site and several others by threatening the companies which host them - internet service providers (ISPs) - with libel suits on behalf of Alisher Usmanov, the Uzbek-Russian billionaire with a major share in Arsenal football club. ISPs are especially vulnerable to the libel laws. Most of them have no stake in the contents of the sites they host and have no means of deciding whether the material they contain or the complaints it generates are true, but they carry as much liability as the people who write defamatory blogs. They can be sued even over the throwaway remarks of anonymous posters on comment threads - this is one of the reasons why the Comment is Free threads have to be moderated by the Guardian. Some lawyers don't bother to write to the authors of contentious web pages, but deal only with the ISPs, knowing that they are likely to surrender at the first whiff of gunpowder.

Some of the successful cases appear to me to be remarkably petty. Last year the directors of the Sheffield Wednesday football club sued the fan site Owlstalk to force it to reveal the identity of 11 anonymous contributors to its forums, who had made derogatory comments about them. The controversial childcare guru Gina Ford obliged the site Mumsnet to apologise and pay her legal costs, after bloggers had alleged, among other accusations, that she had been "strapping babies to rockets and firing them into south Lebanon".

Who but Ms Ford could have taken this seriously? The blogger Richard Brunton tells a shocking story of the threats he received from a leisure company (which he is now too frightened even to name) after contributors to his site had made adverse comments about some of its products. Such threats could bring an end to critical online reviews. The internet butterfly is repeatedly broken upon the wheel of England's medieval laws.

In 2002, the Law Commission, a statutory body, recommended that the libel laws be reformed to protect ISPs. Since then the government has done nothing. British ministers love these censors' laws. Even the newspapers scarcely seem prepared to fight. Rather than campaign for new legislation, they simply wait for the higher courts to act, then claim victory when no such thing has been achieved. It is not as if most of the media are falling over themselves to expose the misdeeds of the rich and powerful anyway: the law gives editors the excuse they need to leave billionaires alone.

As for our parliamentarians, I would like to have ended this column by naming some of these self-interested chickens, who thunder about free speech while allowing the rich to stamp on their critics. But I wouldn't dare: they might sue me.

monbiot.com