Revenue-raising measures such as water charges and higher tuition fees should be the focus of future Stormont budgets, UK Government officials have recommended.

A leaked Northern Ireland Office briefing paper estimates the devolved executive is losing £700 million a year by failing to charge for services like domestic water supply, prescriptions, domiciliary care, transport for the over-60s and having significantly lower university tuition fees than England.

Savings through workforce efficiencies in the civil service should also be considered, the NIO document says.

The paper was prepared for Northern Ireland Secretary Chris Heaton-Harris, who has responsibility for setting Stormont’s budget this financial year in the absence of devolution.

When local ministers left office last year, Stormont was facing a £600 million black hole.

Civil servants were forced to make a range of in-year savings and the Treasury provided a £300 million advance down-payment on the current financial year’s block grant to help bridge the financial gap.

However, with that £300 million having to be recouped in this financial year, the picture looks even more bleak ahead of the 2023/24 budget.

The sensitive briefing paper, which has been seen by the PA news agency, estimates that £345 million could be generated by introducing domestic water charges, while raising tuition fees could bring in an additional £145 million a year.

The document says Northern Ireland is receiving 21% more per head of population than England for the period 2022-25.

But it adds that political instability at Stormont and a failure to undertake major public service reform has created the devolved administration’s financial woes.

“The lack of long-term financial planning of the NI budget will see difficult choices in setting this year’s budget,” the NIO paper says.

“The Secretary of State will need to consider the permanent secretaries’ indicative budgets to ensure that necessary steps are being taken to balance the books, while protecting the most vital services.

“We have also requested that the NICS (Northern Ireland Civil Service) offset reductions to service provision through the elimination of duplication across departments this year, and by taking steps now to increase revenue raised in future financial years.

“We recommend that any future Northern Ireland budget should focus on the money that can be raised from revenues to help fix NI finances.

“They should also consider staff savings within the Northern Ireland Civil Service, through whatever workforce control methods or efficiencies they feel most appropriate.”

Permanent secretaries in Stormont departments have been asked to find savings ahead of Mr Heaton-Harris setting a budget.

He has also asked civil servants to look at more long-term issues such as workforce planning and options for revenue raising.

It is understood that some other Stormont departments will face cuts of up to 10% this year to protect spending within the Department of Health.

Senior civil servants have been running departments since last October.

Mr Heaton-Harris has already been presented with data by the heads of the departments but has asked permanent secretaries to clarify options for savings. They have until the end of this week to reply.

The scale of some cuts to public services required by the forthcoming budget will require decisions beyond the legal power of permanent secretaries.

This would potentially require new legislation to be introduced by the Secretary of State to enable him to direct the officials to make cuts.