Britain's armed forces could struggle to respond to a sudden emergency because of recent commitments around the world, a watchdog has warned.
UK troops are set to be busy for the foreseeable future
The National Audit Office says Navy funds have been diverted to the Army for duties in Iraq and Afghanistan.
It adds that RAF fast-jet pilots are also spending one hour less in the air a month, which could affect skills.
Armed Forces Minister Adam Ingram said troops would not be put at risk despite the high level of commitments.
The Ministry of Defence says it is unsurprising that the current level of troop commitments has an impact on soldiers being ready for more operations.
But Conservative shadow defence secretary Michael Ancram said: "This government is effectively sending our forces to war with one arm tied behind their back."
The Treasury's desire to save funds was producing "utterly unacceptable" risks by depleting the forces' capability and readiness.
British troop deployments currently include Kosovo, Bosnia, Iraq and the Gulf region, and Sierra Leone.
The Army is preparing for a major deployment next year when it takes over the lead in peacekeeping in Afghanistan.
NAO director David Clarke said: "They are using the money they would normally have had to reach a particular state of readiness to put towards more pressing needs to do with operations.
"The cost is in terms of readiness of other things - it is in terms of longer term training and it is in terms of people being stretched."
The report says the Navy has been particularly affected. In the worst-case scenario, just over half the British fleet would be ready on schedule.
Ships not needed are generally repaired only if there are problems affecting health and safety or environmental safety.
The NAO says: "Although funding is planned to start to return to normal from 2006, the MoD anticipates that the material state of the Fleet will degrade, along with its ability to undertake high readiness tasks over a longer period."
The RAF has cut flying hours for fast jet crews from 17.5 hours a month to 16.5.
The MoD says the risks are "acceptable" but the NAO warns it could affect "high-end war fighting skill sets" and over time dilute skills and experience.
The report suggests 38% of forces have "serious weaknesses" in their state of readiness.
But the problems were only critical for 2% of forces and the MoD says that has now been eliminated completely since the report, covering the last quarter of 2004, was written.
The report says "perfect" readiness is not desirable and the cost of keeping forces ready has to be balanced against the likelihood of situations happening.
The MoD said "serious weakness" in readiness meant it would have to work harder to get forces ready on schedule, not that they could not be ready if needed.
Mr Ingram told BBC News that there were more British service personnel deployed in Northern Ireland than in Iraq and Afghanistan put together.
"The judgment has to be made - have we failed in any of our tasks? And the answer is no," he said.
Troops would not be put in harm's way if senior commanders said they could not deliver, he added.
Liberal Democrat defence spokesman Michael Moore said ministers had to realise they either provided the right funding or made fewer commitments.
"There's no sense from this report that the Government have grasped the seriousness of that issue," he said.
Gulf: 8,350 inc 7,500 in Iraq
Sierra Leone: 98
UN missions: 329
Northern Ireland: 11,000
Falkland Islands: 1,177
Ascension Island: 40
Source: MoD. Figures as of 1 April 2005