The Northern Secretary has warned that a return to direct British rule in Northern Ireland is a possibility if the current issues at Stormont cannot be resolved.

Theresa Villiers has said a return to direct rule is not off the table should talks on welfare reform not be resolved.

“What’s at stake is not just the credibility of devolved government in Northern Ireland but the survival of devolved government in Northern Ireland,” she said, The Irish Times reports.

“One only has to look round Europe to see the terrible problems caused when an administration can’t live within its budget,” she added.

Speaking at the Conservative Party conference in Manchester warned that the “hard line” taken by some in Stormont against welfare reform could collapse the government. And she said talks need to progress quickly.

"Unlike last year, we simply don't have the luxury of endless long hours of discussions stretching on and on until Christmas," she said.

"There's now a real risk that those taking a hard line against welfare reform could end up running the devolved institutions into collapse as collateral damage”.

She added that a return to a system of direct rule, after the progress of recent years, would be “a severe setback”.

Ms Villiers also used her speech to criticise Jeremy Corbyn for not condemning the IRA in an interview, and said the Tory party will "never accept any attempt to re-write history or legitimise the actions of those who pursued their aims by the bullet or the bomb".

Stormont parties are currently deadlocked on two major issues – welfare reform and questions of continuing IRA paramilitary activity.

Northern Ireland faces a £600m shortfall in its budget, with the SDLP and Sinn Féin refusing to accept a previous welfare deal.