A £1bn modernisation programme of the UK’s justice system is facing a ‘daunting challenge’ after falling behind schedule and overrunning costs, according to Whitehall’s spending watchdog.

The National Audit Office has found that the changes being rolled out by HM Courts & Tribunals Service (HMCTS), an agency of the Ministry of Justice (MoJ), are behind schedule and facing funding gaps. Costs have already risen by £200m to £1.2bn, auditors found.

A report, released on 9 May, comes as the MoJ needs to reduce its annual spending by £500m from 2015-16 levels by 2019-20 to meet the commitments in the 2015 spending review.

The justice secretary, David Gauke, recently appointed Tim Parker, a former boss of Kwik-Fit and the AA, as chair of its board.

Auditors believe the modernisation plans are ‘extremely challenging’ and there is a significant risk that HMCTS will not be able to achieve all it wants within the time available.