The British Treasury has been formally informed the Northern Ireland Executive is set to bust its budget.
The head of the Northern Ireland Civil Service, Malcolm McKibbin, has written to the permanent secretary at the Treasury, Sir Nicholas Macpherson, warning that this year's spending limits will be breached if the funding crisis at the heart of the power-sharing administration is not resolved.
Executive ministers are wrestling with the requirement to make around £220 million (€282 million) of in-year reductions.
A significant amount of that sum - £87 million - is a penalty imposed by the Treasury for the Executive’s failure to agree to implement the UK government’s welfare reforms in the region.
Sinn Féin exercised its veto to stop the introduction of the changes to the welfare system in Northern Ireland.
Executive Ministers are at loggerheads on how to address the funding crisis - an impasse that has put a question mark over the future of the institutions.
If the Executive overspends on the block grant it is likely the Treasury will take action against the administration.
Options range from subtracting the overspend total from next year’s budget allocation to the more drastic step of taking responsibility for financial decisions away from the Executive.
Stormont Minister for Finance Simon Hamilton said: "It is incredibly serious if we do breach our budget.
“The head of the Civil Service writing to Treasury is a serious escalation and an increasing of the level of seriousness of this situation.”
He told BBC Radio Ulster: "If we do overspend, which now looks likely, and not to the tune of a couple of million pounds but around £200 million possibly of a breach of our budget, the least worst consequence of that is the Treasury will take whatever much we overspend off our budget next year and, as everybody knows, our budget next year is already under incredible pressure, not least because we face a further £114 million worth of fines because of welfare reform and not moving on that legislation."
Northern Ireland Secretary Theresa Villiers has called for a fresh round of intensive political talks in the region to address the budget problems and outstanding peace process disputes over flags, parades and the legacy of the past.
However, it is not yet clear when the negotiations will take place or even whether all the Executive parties will agree to take part.
Press Association
