Northern Ireland is being underfunded “by design” in a blackmail bid to restore Stormont, Parliament has been told.

Speaking at Westminster, DUP peer Lord McCrea of Magherafelt and Cookstown said there was “a nod and wink” that cash would follow if his party was to end its powersharing boycott and “the money tree will magically blossom again”.

He made his comments as peers considered the Northern Ireland (Interim Arrangements) Bill.

The region is facing cuts in the latest budget which was set by Northern Ireland Secretary Chris Heaton-Harris in the absence of locally elected ministers.

There have been no functioning devolved institutions since last year when the DUP withdrew in protest over the post-Brexit trading arrangements for Northern Ireland.

The UK Government and EU unveiled the Windsor Framework earlier this year as a means of resolving difficulties caused by the Northern Ireland Protocol, but the DUP has said its concerns must be met before it returns to government.

Civil servants at Stormont have already been handed some extra powers to take decisions usually reserved for ministers and the Bill seeks to extend those powers beyond their current expiration date of June 5.

Lord McCrea said: “This underfunding and unfair budget for Northern Ireland in my honest opinion is not by chance, but it is by design.

“Those in authority know well that these cuts when they come will hurt the sick, the children, the vulnerable, the elderly, the weakest in society, but they believe that will be a price worth paying to get the Assembly and force the executive up and running.”

He added: “We all know this is to be used to endeavour to blackmail the DUP to get back into the executive with a nod and wink that money will follow if they do. In other words the money tree will magically blossom again.”

Former DUP deputy leader Lord Dodds of Duncairn said: “If the executive and the Assembly were back tomorrow it would not make the slightest difference to the underfunding of Northern Ireland.

“In fact, newly installed ministers would have to go about the business of slashing public services in health and education, policing and so on to an unprecedented degree.

“The need is here and now. The underfunding is taking place as a result of decisions taken here in Whitehall and Westminster by the Treasury.”

He added: “Today’s budgetary position in Northern Ireland means social, economic and political dislocation.”

Former Labour MP Baroness Hoey, a Brexit supporter who now sits as a non-affiliated peer, said: “I would urge the minister not to treat this as some kind of almost bargaining point with politicians in Northern Ireland. That is not the way to deal with a serious financial situation.”

Liberal Democrat Baroness Suttie said: “There is no doubt that Northern Ireland is facing an extremely challenging situation as regards future public financing.

“Surely the place for this to be debated is the Northern Ireland Assembly. I am under no illusions that a fully functioning Assembly and executive would immediately be able to resolve these complex issues, but it would provide one strong voice to lobby the Treasury.”

Responding, Northern Ireland Office minister Lord Caine said: “The Government has for many years recognised the unique challenges that Northern Ireland faces and the argument that Northern Ireland has been systematically underfunded by the Government in my view simply does not hold water.”

He pointed out that renegotiating funding arrangements would take years.

The minister added: “This is not an issue that could be solved overnight even with the best will in the world.

“It would also be far more powerful if the case members are making was being done so from a functioning Stormont.

“This is an issue best addressed in the context of a restored executive and Assembly in Northern Ireland in discussions with the Treasury.”

The Bill is set to become law after being approved by the Lords without amendment.