I'm often intrigued by how convinced many are that in itself, testing is wrong. Testing is what the school system is based on. Fail at ten = don't get into GS; fail at sixteen = compromised life chances. Does the same apply to every other system of passing and failing - driving tests, tests for entry to the army, to medical school, for swimming?
Tests are a part of life, and they are not, strictly speaking, "fair" insofar as they test you on that day - someone can be a perfectly competent driver but nervous - but I don't see this test, in itself, as being an unmitigated source of misery, stress and unhappiness.
In my view, we start to divide and separate pretty much as soon as children hit reception through reading groups, and this remains pretty consistent throughout their schooling. Some will argue that the test at the tender age of ten will damage children's psyche irreparably in a way being placed into bottom sets will not. I disagree. I think it has the potential to do that, but then I don't agree that children are not harmed psychologically through setting. However, the benefits of such are felt to outweigh any potential negativity.
Certainly, if a child is told she is a failure, is non academic, she will feel that. If she reassured she did her best, that many people peak later and that she's now going to be the top of her new school, she won't. As with most things, the bigger deal we make out of it, the bigger deal the children do.