The Defence Secretary Ben Wallace has acknowledged there is currently a shortfall in the Ministry of Defence (MOD) budget, but insisted his department must do more to spend within its means.
Speaking on Nick Robinson's Political Thinking podcast, Mr Wallace also confirmed he has met with the Prime Minister's chief aide, Dominic Cummings, about improving how the MOD purchases military equipment.
Mr Cummings is expected to overhaul defence procurement at the start of next year, after branding major military purchases "a farce".
Appearing on the podcast, Mr Wallace accepted MOD spending plans set out in the 2015 defence review have not been fully funded.
He also said that he had urged British military chiefs to manage their expectations in order to build credibility with the Treasury.
Mr Wallace said the dangers of "optimism bias" fed to those in his role, delaying progress.
"Everything gets put off... to next year or the year after that," he said.
"The best thing I can do for the men and women of the Armed Forces is to make sure that we cut our cloth to match our ambition."
Referencing a culture of "old tricks" from his time in the aerospace industry, Mr Wallace said he wants to develop a more honest approach in securing funds.
He said he wanted to "get an agreement for the actual model, or helicopter for example, and then a few years later come and ask for what you really want to be added on as extras".
Eight months ago, Mr Cummings wrote in his blog that the UK's two-aircraft carriers could not be used against a "serious enemy".
HMS Queen Elizabeth and the newly-commissioned HMS Prince of Wales cost the UK a combined total of £6.2 billion.
The Defence Secretary said he has made it clear what the service heads need to prioritise.
For the First Sea Lord, it is to get the fleet working properly; for the Chief of the General Staff, it is to focus on Army recruitment; and for the Chief of the Air Staff, it is to speed up the training of pilots and improve retention.
Professor Michael Clarke, Associate Director of the Strategy and Security Institute at the University of Exeter, told the BFBS Radio Sitrep podcast about his concerns over how the military retains staff.
"Some of them just leave before they qualify as pilots - because they're fed up of being told it'll be 'another six months'... before they can move from their basic training to getting inside a decent cockpit," he said.
Professor Clarke also told the podcast that "retaining people after they've been expensively trained" is proving difficult across the forces.
"If they leave after six or seven years, instead of 12 or 13 years, that matters," he said.