Statements by a senior Treasury Minister and the Welsh Government over the weekend have suggested that the power to raise income tax in Wales could be partly devolved, with the legislation passed in the next couple of years. The prospect was raised by by the Chief Secretary to the Treasury, Danny Alexander, in a speech to the Welsh Liberal Democrat Conference.
Asked afterwards why he thought the Welsh Government would want income tax devolved at the same time as a range of smaller taxes that it has asked for, the Chief Secretary pointed out that the proposal was in first report from the Silk Commission on devolution, which was backed by all parties in the Assembly. The Welsh Government duly welcomed his speech.
In the debate in the Assembly when AMs backed Silk last November, the First Minister was very cautious about devolving income tax, which the Welsh Government had not asked for in its evidence to the commission. He said the idea was 'worthy of consideration', bearing in mind the steps along the way that would in his view be needed.
If the UK government devolves income tax raising powers, the Welsh Government would probably be required to hold a referendum in line with Silk's recommendations. Only after winning that vote could it start varying the tax rate. It could certainly commit itself to not going ahead without winning a referendum. Either way there would be no rush to call such a vote.
But there is a difference between a tax-varying power and a tax-raising power. The UK Government could replace part of the Welsh block grant by devolving a proportion of the income tax raised in Wales. That would mean the Welsh Government would get more revenue if the economy grew -and less if it shrank.
Whether Danny Alexander can persuade his cabinet colleague, the Welsh Secretary David Jones, remains to be seen.