The move will ensure that the allocation of allowances is fair and appropriate to meet the needs of Service personnel.
The savings measures announced today follow an extensive review of the allowances system which has attempted to ensure the eligibility criteria are appropriate and the rates are set at realistic levels.
All actual, unavoidable expenses incurred for Service reasons will continue to be reimbursed.
Allowances paid for operations and separation from families have remained the highest priorities for reimbursement and lower earners have been protected as much as possible.
The Prime Minister set out the need to reduce allowances as part of the wider Strategic Defence and Security Review, published in October 2010.
Savings of £250m a year from the current annual Service allowances bill of £880m have been identified following an extensive review of the system.
The changes announced today affect a broad range of allowances. Alterations to the Local Overseas Allowance, paid to personnel stationed abroad, will save around £30m per year, given current exchange rates, after the staged introduction of savings to April 2012.
The Department has already announced adjustments to the Continuity of Education Allowance which are expected to save £20m a year.
Andrew Robathan, Minister for Defence Personnel, Welfare and Veterans, said:
This Government knows that these changes will require some readjustment and will be painful for some personnel as they come into effect over the next three years. But we are all aware of the financial difficulties currently facing the country and we have had to make hard decisions.
Where possible we are implementing the changes gradually over a number of years to ensure that personnel have time to adjust. All Government Departments have had to cut expenditure, and the Defence Budget is not exempt from this. These changes are absolutely necessary to get spending under control.
The review has expressly not targeted those on operations which is why no changes are proposed for Operational Allowance, Longer Separation Allowance or Unpleasant Working Allowance.
A full list of affected allowances and an explanation of the changes to them is available in the ‘Summary of changes to allowances’ document at Related Links.