It's good to see that someone so near the top has identified that they've royally fecked up, but I don't think that's their primary concern. There's certainly an argument for allowing entry to people who aren't physically fit or healthy enough and then training them up to the standard (like we used to before phys became such a high priority).
But I think they also need to recognise that there just isn't enough drive in most 18-35 year olds to push them toward military service. They've not been exposed to major global conflict like previous generations, where WW2 and the Cold War were relatively fresh in our history. In context, their exposure has been to our conflicts in distant dusty places that seemed to fill no defensive purpose. The 'war on terror' is completely different, in that it's been brought home on more than one occasion, but there's a definitive disconnect between the military and home grown terrorism - we've not deployed to sort that out, it's the job of the police or MI5.
Combine this with our current crop of oh-so-easily-offendable-snowflakes, and there's not many left who could be deemed as 'soldier material'. I think that (regardless of physical gender), soldiering has always required a certain element of masculinity - and we've managed to breed that out of our newest generations, in favour of a more metrosexual / hormone-neutral approach. I'm not trying to be sexist, I'm talking more of a psychological masculine / femenine rather than physical gender.
the MOD has spent the last decade chopping off any perks associated to military service, and cutting manpower because it 'wasn't needed'. All of this has been clearly visible to the public, so what's the incentive to join (or more specifically, to join and stay)?