Devolution Settlement Starts To Fail?

Well according to The Dragon's Eye the Wales Office thinks that the Housing Legislative Competence Order is "fatally flawed" - which is the first the Welsh Government has heard of this.
Essentially the dispute is over the thickness of the salami slice of legislative authority that Welsh Labour MPs are willing to concede to the National Assembly. At stake is the scope of the National Assembly to legislate over the “right to buy” for council tenants. The Welsh Government would like the power to suspend, or even abolish the right to buy council houses by tenants in those councils where there is a serious shortage of social housing. MPs believe that the LCO should be restricted to the immediate intent of the Welsh government, which is selective suspension of the “right to buy” and that additional power should not be extended without a further request for power to themselves via a new LCO.

At the heart of this is whether the Assembly can be given the power to legislate without having to go cap in hand to the Welsh Affairs Select Committee of the House of Commons each time. It would appear that the Select Committee want each LCO to be so narrow that they can only be used to pass one Welsh Measure pre approved by them, effectively giving them the power to veto Welsh laws and control the policies of the Welsh Assembly Government. This is not how the system was supposed to operate. The settlement built into the Government of Wales Act was to enable the Assembly to draw down legislative power field by field within subject areas. It was supposedly permissive. MPs were to agree the principle that the Assembly could legislate in that area and any proposed Assembly Measure was to be illustrative, they were not intended to look into future possible legislative measures.

Behind this is a power struggle, between the pro and anti devolution wings of the Labour Party. For the anti-devolutionists a nice side effect of this is to put a strain on the Labour/Plaid coalition. If, as now appears, the Secretary of State for Wales is siding with the Welsh Affairs Committee then the power struggle has intensified. It is up to the Labour ministers in the Welsh Assembly Government to now make a stand, support publicly the proposed LCO, argue for it and against this assumed authority of the Welsh Affairs Select Committee to dictate policy. If they don't Plaid will begin to wonder what is the value of being in a coalition with a party that is not prepared to support its own policies and which defers to Westminster.

If Welsh Labour can't deliver on this LCO then what hope is there of them fulfilling their promise on a referendum to transfer full legislative power?

The power to only pass those laws and make policy that agrees with Westminster is no power at all. Which is where a large chunk of the Labour party would like it to be. If they can detach Plaid from the coalition then Christmas will have come early for them.