Finance Bill

Debate between Ellie Reeves and Jim Cunningham

Tuesday 31st October 2017 Commons Chamber

[Ellie Reeves (Lewisham West and Penge) (Lab)]

I am grateful for the opportunity to speak once again in the debate about the taxation of termination payments.

Before entering this place, I was an employment rights lawyer for more than decade, so this issue is very important to me. I have represented employees who had been dismissed and discriminated against day in, day out. Very often, this would involve negotiating termination packages or settlement agreements for them. The Bill seems to make it harder for people to get proper compensation for their ill treatment. Having seen at first hand the devastating effect that dismissal and discrimination can have on someone’s life, I am deeply concerned that the Bill seeks to narrow the scope of termination payments.

An employee can currently receive up to £30,000 in tax-free compensation as part of a settlement package. The figure already excludes from the tax-free amount things that would generally be considered as pay, such as accrued but untaken holiday pay, any unpaid wages or bonuses due, and pay in lieu of notice that is provided for in the contract of employment. However, sums for future loss of earnings or for injury to feelings are generally not subject to tax, provided they do not exceed £30,000.

Far from this being about tax avoidance, it is about properly compensating people who have been wrongly treated rather than treating them as a means to top up the coffers. Despite this, the Government wants to give themselves the power to decrease the tax-free amount that can be paid to an employee upon termination. Under the proposals, the threshold could be reduced using secondary legislation, without the full and proper scrutiny of parliament. The Minister says that the Government have no intention to reduce the threshold.

[Mr Jim Cunningham]

The previous Conservative Government changed the redundancy legislation. The purpose of redundancy money is to tide people over until they can get another job, so it should not be taxed at all.

[Ellie Reeves]

We know that redundancy payments and the way in which they are capped means that they often do not adequately compensate people after they have been dismissed from work. The fact that the Government want to give themselves the power to decrease the threshold prompts a question: why do they want to do it if they do not want to exercise that power? It seems that they would treat those who have suffered wrong treatment in the workplace as a source of revenue rather than as victims worthy of support. This is all the more important when taking into account the fact that the tax-free threshold has not increased since 1988.