U.K. Ready to Rewrite Lawbreaking Brexit Bill to Get EU Deal

(Bloomberg) -- British officials are prepared to water down Boris Johnson’s controversial lawbreaking Brexit legislation in a move that could revive failing talks with the European Union, according to people familiar with the matter. The pound rose.

Negotiations over the two sides’ future relationship have stalled, with the prime minister announcing on Friday that he will focus on preparations to leave the EU’s single market and customs union at the year-end without a trade deal -- though he is still open to talks if the bloc changes its stance.

One obstacle negotiators face is rebuilding the trust that was badly damaged by Johnson’s U.K. Internal Market Bill, which rewrites parts of the Brexit withdrawal deal he struck with the EU last year. The bloc is taking legal action against the U.K., and European leaders have demanded that Johnson drop the controversial clauses relating to trade with Northern Ireland as the price of any wider accord.

So far, the prime minister has refused, but his officials believe Parliament will force his hand when members of the House of Lords -- the U.K.’s unelected upper chamber -- remove the clauses that would breach international law.

The bill began its progress through the Lords on Monday. Legislators there are unlikely to reject the draft law entirely this week, but are certain to take out the most controversial parts in the weeks ahead, people familiar with the government’s position said.

That will force Johnson to decide how hard to fight to keep the clauses. The people said they expected Johnson to drop, or dilute, the most difficult sections of the law if he secures an overarching trade deal with the EU, potentially as part of the negotiations with the bloc.

One person suggested the law itself was always a negotiating tactic. Another said ministers would be ready to agree to add extra guarantees to dilute the most contentious powers in the bill, which may not be needed if a new EU deal can be struck.

The bill gives U.K. ministers power to unilaterally rewrite the rules of trade with Northern Ireland -- the focus of one of the most fraught negotiations of the whole Brexit process as both sides sought to avoid the return of checkpoints on the border with the Republic.

“Political Steer”

Cabinet Office Minister Michael Gove held talks over the issues covered by the new law in a joint committee meeting with the EU’s Maros Sefcovic on Monday. In a statement after the meeting, Sefcovic said he welcomed Gove’s “clear political steer and commitment” so the two sides can resolve their disagreements over the Northern Ireland protocol.

“It was agreed that contacts at all levels will significantly intensify,” Sefcovic said. “Today’s meeting demonstrated the political will to move at pace on both sides.”

Johnson’s chief negotiator, David Frost, was also due to discuss the state of play with Michel Barnier, his opposite number from the bloc, in the afternoon.

In a round of broadcast interviews on Sunday, Gove said the door was still “ajar” for talks, but he was less hopeful than he had been in recent weeks that a new trade deal will be reached. On Monday, Communities Secretary Robert Jenrick called on the EU to show more “flexibility.”

“Unless something changes, unless they are willing to come back to us and show that degree of flexibility and maturity, we will leave -- at the end of the year -- the transition period, and trade on the sorts of arrangements that Australia has,” Jenrick told Sky News. “It would be sensible at this point for them to go that extra mile, to come closer to us.”

The pound advanced as much as 0.9% to $1.3025 as of 3:30 p.m. in London.

“Weekend developments and headlines are spurring demand for the pound this morning,” said Neil Jones, head of foreign-exchange sales to financial institutions at Mizuho Bank. “There is a growing perception that the red lines are maybe closing in, raising the chances of a deal.”

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Businesses would like to see an agreement so they can plan and adjust to the changes, British Chambers of Commerce head Adam Marshall said late Sunday. In the meantime, Gove is telling companies that “time is running out” to prepare for no deal.

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