Chancellor Gordon Brown has announced a £400 million boost for the Armed Forces engaged in operations in Iraq and Afghanistan.
Delivering his 11th Budget, he also promised an extra £86 million for the intelligence and security services in the fight against terrorism.
The measures were coupled with a £36 billion asset sell-off - including the student loan book - and a £26 billion-a-year Whitehall efficiency drive to release money for frontline public services.
Mr Brown also confirmed a boost for British business with a cut in mainstream corporation tax from April 2008 from 30p down to 28p.
The Chancellor said the new rate would be "the lowest of all the major economies".
Mr Brown said that inflation was on track to meet the Government's 2% target over the coming period.
He said that he had met his "golden rule" for the public finances of only borrowing to invest during the economic cycle with a margin of £11 billion to spare.
Earlier, with a well-received opening Budget gag the Chancellor met critics who described his governing style as "Stalinist" head-on. Smiling before he even got to the punchline, Mr Brown said his thanks were due to the Civil Service for their hard work and, "on occasions, their forthright advice" in preparing his Budget.
What appeared to be a veiled reference to reported tensions between Mr Brown and former top civil servant Lord Turnbull drew cheers and laughter from the House of Commons and a smile from Prime Minister Tony Blair, sitting behind him.
But there was more to come in the form of a knowing aside from Mr Brown: "Or should I say 'Comrades'?". Mr Blair chuckled as the rest of the House guffawed.
