PM's double yes push for tax raising powers in Wales

David Cameron and Nick Clegg at Cardiff Image copyright PA
Image caption David Cameron and Nick Clegg announced in November Wales would be offered some control over income tax subject to a referendum

The prime minister has indicated that he'll be pushing for a "double yes" in relation to the possibility of income tax varying powers for Wales.

By saying this he means pushing for a yes to hold a referendum in the first place and then a yes in the subsequent referendum.

So what's the significance of these comments?

First, here's a reminder of where we are in relation to the roll out of further financial powers.

David Cameron and his deputy Nick Clegg came to Cardiff at the beginning of November to announce that Wales would be getting tax-varying powers. These include control over landfill tax, stamp duty and some borrowing powers.

They also said they would pass the legislation which would allow the Welsh government to hold a referendum to gain partial control of income tax if it wanted to do so in the future. A draft Wales bill kick-starting this process is expected to be published sometime next week.

M4 relief road

Control over stamp duty could allow the Welsh government to do some interesting things like removing the big jumps that exist with this tax, such as going from 1% of the value of a property between £125,00 and £250,000 to 3% for anything between £250,000 and £500,000.

There are also big implications as a result of borrowing powers as it's expected they will allow construction of an M4 relief road around Newport to get under way, although no final decision has been made yet. Borrowing may also pave the way for future improvements such as a third crossing over the Menai Strait.

But the biggest tax of the lot in terms of revenue is income tax.

At a news conference at the Senedd in November, in one breath the prime minister said it was up to the Welsh government and the people of Wales to decide and in another he said he looked forward to coming to Wales as a Conservative to campaign for lower taxes.

So the prime minister had hinted pretty heavily that he wanted the powers to come to Wales. His latest comments go further and leave us with the possibility of the Conservatives sounding more pro-devolution than Labour in the General Election campaign when it comes to income tax.

The message couldn't be more different than the one outlined by the First Minister Carwyn Jones at his news conference earlier in the week marking his four year anniversary in the job.

He described the referendum on income tax varying powers as a trap because he said it would be used as an excuse not to review the Barnett Formula -- which is the mechanism that distributes money from Westminster to the devolved nations of the UK.

Funding worries

The Welsh government's position is that Wales is under-funded and the entire system needs to be reviewed.

It believes devolving income tax could provide an excuse for the Treasury to pull back funding for Wales because the country has an opportunity to raise its own funds.

In fact he was outwardly suspicious of the Coalition government's motives on the devolution of income tax, saying: "The fact that they are so keen to have it is always a sign that it's not necessarily going to be a good thing for Wales."

If all of these weren't enough, Carwyn Jones also doesn't think the country would vote yes in a referendum on income tax because he believes the default setting would lead many people to think that the Welsh government would simply put the tax up.

Whatever the rights or wrongs on this, it's becoming increasingly clear that the Conservatives at Westminster will be pushing for a referendum on income tax in order to push for lower taxes.

One final point on income tax: the model that is on the table for Wales is what's called the "lockstep" model. It means the Welsh government would not have the freedom to target one particular band, any rise or decrease would have to be carried out in tandem across the lower, middle and higher rates.

It means income tax becomes a very blunt instrument and yet another reason why it won't be top of Carwyn Jones' in-tray in 2014.