A £15,000 loyalty bonus is to be offered to members of the British armed forces in a desperate effort to halt an exodus driven by the strains of fighting wars in Afghanistan and Iraq.
The pressure on soldiers, sailors and air force staff is so great that defence chiefs are reported to have demanded an urgent review of the services' capability.
The decision to treble the value of the loyalty award for soldiers to stay on after their fourth year of service for another five years underlines the difficult situation facing members of the armed services and their families.
Defence chiefs have used their right to meet the Prime Minister and went to Downing Street to underline their concerns face-to-face with Gordon Brown.
The senior officers are said to have questioned the wisdom of pursuing expensive projects such as two new 60,000-tonne aircraft carriers at a cost of £3.9bn while the forces remain short of routine equipment such as helicopters.
The chiefs have warned that the services are running "hot", which is sapping morale among troops who are unable to get regular leave from the front line. Defence industry sources claim that Mr Brown is keen to press ahead with the carriers because it will protect jobs.
The Treasury has provided an extra £4.5bn this year for defence because of the wars in Iraq and Afghanistan from the contingency reserve but senior officers are complaining that they are still being asked to do too much with too few resources. The Commons Defence Select Committee warned in its annual report that conditions for the armed forces were driving soldiers out of the Army. It said the defence budget had been allocated an extra £7.7bn by 2011, but cuts were "likely" because of commitments to new major equipment projects.
The MPs also warned that the "harmony" rules giving troops and their families leave together were being broken, causing more problems with retention.
Loyalty reward bonuses are being increased from next year from £5,500 to a maximum of £15,000 before tax, at an estimated cost of £80m a year to the taxpayer, in an attempt to stem the annual outflow of soldiers.
Defence officials denied soldiers were leaving in "droves" but conceded there was a problem with retention that had to be addressed. The MoD also announced that it is spending £20m on a pilot scheme to offer rent-to-buy houses and flats for servicemen and women who have trouble buying a home when they leave the services – another factor raised by the select committee in the problems over retention.
In April, the MoD is launching a review of the reserve forces that plug gaps in capability in Iraq and Afghanistan. Major- General Simon Lalor, assistant chief of defence staff for the reserves, said they were not "weekend warriors".
Since a defence review in 1998, reserves have routinely been deployed abroad, particularly those with specialist skills such as doctors and nurses. The review will seek to make more use of the skills in the ranks of the volunteers on the front line. Maj-Gen Lalor denied reports that there would be massive cuts in the reserve forces.