The UK Attorney General has said the government can make changes to the Northern Ireland Protocol, The Times has reported, giving the Prime Minister the legal cover to act.
The news organisation reported late on Wednesday that Suella Braverman has advised any legislation to override elements of the protocol would be legal as the "EU's implementation of it is disproportionate and unreasonable".
The paper said evidence found the trade barrier created by the protocol "undermined the Good Friday Agreement" and was fuelling unrest. Ms Braverman's reasoning found the 1998 peace accord was more significant that the protocol.
It is understood the Cabinet is split on the matter with those against concerned it could spark a trade war. It is reported the chancellor is considering the economic impact of any potential new legislation, but he was not blocking the move.
Jacob Rees-Mogg, the Brexit Opportunities Minister has played down the possibility of a trade war.
Irish Foreign Affairs Minister Simon Coveney, earlier, said any attempt by the UK to take unilateral action on the protocol would worse relations with the EU.
"What it will do is result in legal action and potential counter measures and nobody wants to see tensions between the EU and UK," he said on a visit to Belfast.
The protocol was drawn up between the EU and UK in order to avoid a border between Northern Ireland and the Republic. However, it has placed a border between NI and the rest of the UK, sparking anger from unionists.
The DUP has refused to re-enter an Executive following last week's election over the protocol and has indicated it may not vote to appoint a speaker at the first sitting of the new Assembly on Friday.
Meanwhile, Boris Johnson has told the European Union there is no need for “drama” as he doubled down on hints he could override elements of his post-Brexit deal on Northern Ireland.
The Prime Minister said earlier on Wednesday that the Good Friday Agreement was more important than the Northern Ireland Protocol, as he dismissed suggestions of any possible escalatory response from the EU as “crazy”.
He said the protocol had to be "sorted out" despite warnings from Joe Biden’s White House and European leaders not to single-handedly meddle with the agreement he brokered.
Foreign Secretary Liz Truss is set to tell the EU that the dispute over Northern Ireland cannot drag on, after warning she will “not shy away” from taking action as she accused the EU of proposing solutions that would “take us backwards”.
German Chancellor Olaf Scholz has stressed “no-one should unilaterally cancel, break or in any way attack the settlement”.
Speaking to ITV’s Peston programme, Brexit opportunities minister Jacob Rees-Mogg said the UK would not involve itself in any potential trade war with the EU.
“Tit-for-tat retaliation of that kind is the economics of the school ground and it would damage British consumers at a time of rising (prices),” he said.
Asked how dangerous higher prices caused by a trade war with the EU over the Northern Ireland protocol could be, he said: "It's very unlikely to lead to higher prices for goods coming into the United Kingdom, as you may have noticed…
"We're not going to involve ourselves in a trade war… They're not going to stop selling things to us and we have decided actively not to put more controls on, on the 1st of July to keep prices down, because we're helping people."
At an earlier press conference in Sweden, Mr Johnson said: “The most important agreement is the 25-year-old Belfast Good Friday Agreement.
“That is crucial for the stability of our country of the UK, of Northern Ireland.
“And it’s got to be that means that things have got to command across community support.”
A White House spokesman stressed the need for talks to continue to resolve the issues.
“The best path forward is a pragmatic one that requires courage, cooperation, and leadership,” he added.
“We urge the parties to continue engaging in dialogue to resolve differences and bring negotiations to a successful conclusion.”
DUP leader Sir Jeffrey Donaldson repeated his call on the Government to take action.
“The sooner that happens, the better.
“The protocol is not supported by any unionist MLA elected to the Assembly last week.
“We can’t go on with the situation where there is no consensus at all for this protocol,” he said.
Ms Truss is expected to reiterate in a call with European Commission vice president Maros Sefcovic on Thursday the risk to the Good Friday Agreement and warn that the situation cannot drag on.
Downing Street backed Ms Truss in claiming that some EU proposals are “a backwards step”, but declined to say whether preparations have been made for a possible trade war with the bloc.
The Prime Minister’s official spokesman said: “I think we’re getting ahead of ourselves.
“We want nothing but good relations with our EU partners, but I’m not going to get into speculation about what might happen down the line.”
He said “some relatively minor concessions” from the EU in the past “show that, where there was willing, change could be achieved”.
Asked if the Government is drawing up controversial new legislation, the spokesman said: “I wouldn’t get into, on any issue, the ins and outs of policy development.
“This is something we’re looking at closely, it’s a serious issue, all options are on the table.”
Officials working for Ms Truss are drawing up draft legislation to unilaterally remove the need for checks on all goods being sent from Britain for use in Northern Ireland.
It is understood Ms Truss is poised to take further action in the coming weeks if negotiations with the EU continue to stall.
The proposed law would allow businesses in Northern Ireland to disregard EU rules and regulations and remove the power of the European Court of Justice to rule on issues relating to the region.
Crucially, it would in parts override the protocol agreed by Mr Johnson in 2019 and mean the UK had breached its obligations under the Brexit agreement.
But it has been argued that the protocol will not be completely overridden, with measures instead being considered to ease the issues on the ground in Northern Ireland.