A £38 billion black hole in the UK's defence budget has been eliminated, Defence Secretary Philip Hammond confirmed today.
The Defence Secretary told the House of Commons that the Government had balanced the books as he admitted "tough decisions" were required to fill the gap.
But he refused to release specific details of costs, citing national security and commercial sensitivities.
Despite now having £8 billion headroom in the overall 10-year defence programme and a £4 billion centrally-held contingency fund, Mr Hammond said planned redundancies in the forces would still go ahead.
In a statement to the Commons, Mr Hammond said there had been a "woeful" lack of spending restraint in the Ministry of Defence in the past.
He insisted he had been assured the "prize for good behaviour" now would not be a "Treasury raid" on the department's budget.
The Secretary of State insisted the department would neither underspend or overspend.
"We will manage these budgets to the wire," he added.
The Chief of Defence Staff, General Sir David Richards, admitted in the past that the military, bureaucrats and politicians had "worked in a spirit of optimism rather than realism".
"We were all guilty to a degree," he added.
Mr Hammond told MPs his overriding priority was ensuring the success of military operations.
He added: "The best way I can support our armed forces as they restructure and refocus themselves for the future is to give them the reassurance of stable and well-managed budgets and the confidence the equipment programme is affordable and deliverable."
He praised predecessor Liam Fox for taking "agonising" decisions and officials for helping to turn the "supertanker" around.
"After two years' work, the black hole in the defence budget has finally been eliminated and the budget is now in balance, with a small annual reserve built in as a prudent measure to make sure we are not blown off course by unforeseen events.
"A plan which is endorsed by the chiefs and by the Treasury. We have achieved this by facing up to the fiscal reality and taking the tough decisions which the party opposite shirked."
Mr Hammond said that included reluctantly accepting a smaller armed forces and transforming the role of the TA as the Army gets smaller.
In a major U-turn last week, Mr Hammond announced he was scrapping plans to acquire a more capable version of the US-built Joint Strike Fighter for the Royal Navy's new aircraft carriers.
He said the decision - in the face of soaring costs - to revert to the jump jet variant ordered by Labour was the "last big piece in the jigsaw".
Mr Hammond said financial details of the overall defence plan could not be published because they were highly sensitive and were also subject to commercial confidentiality.
He insisted the plans would be submitted in detail to public spending watchdog the National Audit Office, which he hoped would "reassure" the public.
At a media briefing, Mr Hammond said there was a "very big mess" in the MoD when the Coalition took power and a culture had set in that meant projects were costed based on the best possible outcome.
General Sir David Richards said senior figures in the forces had looked deep into their consciences over how the department had been run.
He added: "There's no doubt we were all guilty to a degree, but we are, this generation of chiefs, the permanent secretary and her staff, have very willingly and together decided enough is enough and we are going to do it better."
Shadow defence secretary Jim Murphy said there was "little detail to support grand claims".
He added: "Short term control of defence costs in order to support careful deficit reduction needs to be coupled with long term reform. The Government, however, has been reckless where care was essential and timid when boldness is required.
"The Defence Secretary has said that there will be no more cuts over and above what he's already announced. This will be of little consolation to the thousands of service personnel yet to be sacked, those facing a £900 million cut to allowances and the veterans and war widows whose pensions are being cut year-on-year."
Prospect, the union that represents 7,000 MoD civilian specialists, accused Mr Hammond of using "smoke and mirrors".
National secretary Steve Jary said: "The Ministry of Defence's claim to have balanced its books does not stack up. It is smoke and mirrors.
"MoD has said it has balanced its books for nearly a year. Why should we believe it will be different this time? Philip Hammond's statement today fails to identify which parts of the equipment programme are to be dropped. Yet, apparently, nothing has changed since last year.
"It seems that the Secretary of State has been persuaded to maintain the 'wish-lists' and unfunded aspirations of the service chiefs: the fuel for what Bernard Gray called the MoD's conspiracy of optimism.
"The wish-lists cost money and tie up people in the development of proposals which, if Hammond is to be believed, will never see the light of day. MoD has delayed its cull of procurement specialists until it knows which programmes are to be dropped. It now appears that it will have to make the cuts while maintaining outputs.
"Without cuts to major elements of the equipment programme, once those jobs have gone there will not be sufficient in-house capability to deliver that equipment. This will mean increased costs, delays and new risks to our armed forces as their safety and security is compromised.
"MoD must now come clean and reveal how it 'balanced the books' and at what cost to the defence of the UK."
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