Finance Bill

Debate between Ellie Reeves and Vicky Ford

Tuesday 31st October 2017 Commons Chamber

[Vicky Ford]

Will the hon. Lady give way?

[Ellie Reeves]

I will make some progress.

It seems curious that the Government want to make it a priority to enshrine it in statute that compensation for injury to feelings awards connected to the termination of employment should be taxed as earnings. This is yet another example of how the Government, rather than going after the big corporations that are avoiding tax, would penalise those who have been unlawfully discriminated against at work.

When we last debated the Bill in Committee on 11 October, it was suggested by Government Members that injury to feelings was some sort of new concept that Labour was trying to introduce to create a tax loophole. Yet injury to feelings is a well-established head of damage, enshrined in the Equality Act 2010 and in the various pieces of anti-discrimination legislation that preceded it, including the Sex Discrimination Act 1975. Guidance on the level of awards was given in the case of Vento some years ago, and it has just been upgraded. The highest award is £42,000 for the most serious acts of discrimination, which usually involves a course of conduct over many years, and the lowest award is £800—usually for a one-off comment. That is established legal principle.

Under these proposals, however, such awards would be taxed as a matter of routine when the £30,000 threshold is exceeded. Not only does that seem inherently unfair to victims of discrimination, but in practical terms it will lead to all sorts of litigation and drafting issues about whether an award is in connection with the termination or a previous act of discrimination unconnected to the termination. For example, a woman is subjected to sexual harassment at work over a sustained period. She subsequently tells her employer she is pregnant and is dismissed as a result. She pursues a claim for sexual harassment, unfair dismissal and maternity discrimination. She is awarded £30,000 for loss of earnings, which takes her up to the tax-free threshold. She is awarded another £10,000 for injury to feelings. Who determines what part of the award is for the harassment, which is unconnected to the termination of her employment and therefore not taxable, and what part is in relation to the pregnancy-related dismissal and therefore taxable?

Moreover, because personal injury claims will be exempt from tax but injury to feelings will not be, we are likely to see more employment tribunal claims pleading personal injury—for example, psychiatric damage—which will inevitably lead to complex medical evidence and longer hearings. With strains already on the employment tribunal system and on HMRC, that is surely not the route we should be going down. Or is this just the start of a slippery slope, with the Government ultimately wanting to tax all injury to feelings awards and all personal injury awards?

For those reasons, I urge the Government to accept our amendments and to go after the real tax avoiders, not hard-working individuals who have been treated unlawfully at work.