The Chief of the General Staff, General Sir Richard Dannatt won an extra £400m for fighting the Taliban in Afghanistan and the insurgents in Iraq, but there were dire warnings that defence spending is still overstretched.
The defence budget was agreed in July between Des Browne, the Defence Secretary, and the Treasury but the Chancellor, Alistair Darling, announced it was being given another increase to cover operations this year.
Defence spending will rise by about 1.5 per cent in real terms, to £37bn by 2010. About £4bn of that is earmarked for the purchase of two new 65,000-tonne aircraft carriers, with more money spent on transport aircraft for he RAF and new armoured vehicles for the Army.
Critics have warned that the budget increase will not be enough to prevent cuts having to be made to frontline ships, aircraft and other equipment. Commander Michael Codner, the director of military sciences at the Royal United Services Institute, warned it would be inadequate to meet all the demands being put on Britain's armed forces by the end of the decade.
The military reaction to Mr Darling's statement underlines the financial pressures on the Government to pull out of Iraq. Gordon Brown had set out plans 24 hours earlier to halve Britain's military presence in Iraq, leaving just 2,500 troops in the country by next spring with the prospect of a total withdrawal by the end of next year.
Ministers have also made pledges to spend £550m on improving the accommodation for service personnel and their families, which has been heavily criticised as inadequate in many bases. It will be funded by doubling the amount of money raised from the sale of MoD land to £3bn, including the Chelsea barracks.
Any additional costs caused by further operations will continue to be funded out of the Treasury's reserves, said the Chancellor. The budget will also meet the cost of the replacement for Britain's Trident nuclear deterrent comprising four submarines, one of which is permanently at sea all year round.
Delivering the pre-Budget report and Comprehensive Spending Review statement to MPs, Mr Darling praised the "dedication and courage of our armed forces in action overseas, including in Iraq and Afghanistan". He added: "To support our armed forces in all they do, I am today allocating an additional £400m for operations this year."
He said the defence budget in the 1990s, under the Tories, had been cut by 20 per cent. "This settlement is the longest period of rising investment in the defence of our country for almost 30 years," he said.
The Treasury documents revealed that there will be a fresh drive for more value-for-money reforms to achieve savings of £2.7bn by 2010-11. It will include savings of 5 per cent a year in head-office costs, and the merger of several departments. including logistics. with the procurement agency saving £253m.
A stabilisation fund of £269m has been created for the next three years to pay for "quick impact development projects in hot conflict zones". It will be managed jointly by the MoD, Foreign Office and the Department for International Development.
Tory spokesmen have warned that the budget may need to be increased by 10 per cent a year to cope with the increasing demands.
The increased budget is unlikely to assuage the veterans who accuse the Government of breaking the covenant guaranteeing to look after military personnel when they are injured. David Cameron, the Tory leader, last week called for a special hospital wing to be set up in the NHS to deal with injured members of the armed forces.
Commander Michael Codner: 'Range of aircraft and ships will now be unaffordable'
The increase of 1.5 per cent in real growth in defence spending is inadequate if the Government intends to deliver its planned force structures.
The Comprehensive Spending Review presages the Defence Strategic Guidance, an internal classified paper due in the coming months, which looks forward 10 years. By then, a range of expensive armoured vehicles, combat aircraft and large warships should have come into service, but will now be unaffordable given the scope of future operations envisaged by this Government in the1998 Strategic Defence Review, its only full review of defence policy.
What have large aircraft-carriers and their fighteraircraft to do with operations in Iraq and Afghanistan, where the need is boots on the ground to counterinsurgencies?
Commander Codner is director of military sciences, Royal United Services Institute