By Oliver Hotham
The cost of Britain's 15 largest defence projects increased by almost £500 million last year.
A report from the Commons' committee of public accounts.stated that, while improvements had been made, the huge costs incurred had been the result of the government grossly underestimating the real cost of their projects.
It emphasised that large defence equipment projects represent a huge proportion of the costs, citing the cancellation of the Nimrod aircraft and the delay of the Astute submarines as costing the taxpayer £3.4 billion and £2 billion respectively.
Chair of the committee Margaret Hodge said: "Rather than the over-optimism which has held sway at the start of major projects, what is needed is realism: about the complexities of projects, the long-term costs of decisions taken today and the implications down the line of short-term budget cuts.
"While we welcome the trajectory of improvement, the department is still unable to set out openly the extent of the gap between income and expenditure it still faces, and how and by when any shortfall will be resolved.
"We are concerned that the assumptions the department is making about its budget in the future may now prove unrealistic."
Defence secretary Philip Hammond responded by saying the government was beginning initiatives to prevent the problem.
He said that the government had reduced the yearly increase in this kind of spending by seven times. Describing the decision about Nimrod as having been "tough but necessary", Mr Hammond cited the success of the Astute submarines, saying they were now in use by the military.
The opposition said that the prime minister had lost his credibility on defence.
Shadow defence secretary Jim Murphy said: "The conspiracy of optimism has led to unreal forecasts and it is the taxpayer who too often has picked up the bill.
"The government's industrial strategy did nothing to prevent this from happening again, for example by placing tougher targets on industry as we have suggested.
"Instead of reform we have capability gaps, unfunded liabilities on the balance sheet and depleted and demoralised armed forces."
There is increased pressure on the government on the issue of their defence cuts, amid fears by generals and reports this week that cuts could mean the end of Britain's status as a leading military power.