Re: Is this legal?
Some racist people think it is, and that, certainly for the purposes of the UK's Equality Act, is what matters.
You could also argue that religion is not race, but again, some racist people think it is, so that's what matters.
Either way, it is designed to stop racist people from being racist. The fact that the criteria they use for their discrimination is bogus is the whole reason why we have the law in the first place.
Point 2: Would that be White Americans vs Native Americans?