Cardiff are hoping to slash £750,000 off their wage-bill which has soared in recent years.
"This is the biggest, hardest, toughest, worst decision I have had to make in my 20 years with Cardiff," said Blues chairman Thomas.
"They are two of the greatest servants we have ever had. I've never met two finer people than Martyn and Tom.
"They are absolute gems, who have given us everything. Tom has kept his knee together since the Lions tour of 2005 and put his body on the line year after year.
"And Martyn is a legend who richly deserves to become a centurion for what he has done for Welsh rugby. He is one of this country's finest ever players.
"But Old Father Time catches up with everybody. They are both coming out of contract and part of the cutbacks are that people who are out of contract can't be retained because other people are in contract.
"Over the last few years, and this season in particular, we have thrown the financial kitchen sink at the squad. Our squad cost for this season is £5m.
"We've gone for the best in Dan Parks and Michael Paterson and retained Xavier Rush. On paper, it's by far the strongest squad we have had.
"A lot of people have taken huge decisions to support this and we will continue to support it."
Thomas has pointed to the Blues' failure to advance from the Heineken Cup pool stages as the reason for the budget cut and the decision to not renew the Lions' contracts.
"But the reason for the budget reduction for next season is quite simple. It's the cost of failure," added Thomas.
"We failed in the Heineken Cup and we have to face the consequences and pay the price. We didn't get the income we were projecting from Europe. As a consequence, we are cutting back.
"It doesn't mean we won't be competing for the Heineken Cup next year. Our ambition has not faltered at all.
"We want to be there at the top end of European rugby, competing in every game and every event.
"We are not destroying this team. We are not going backwards, we are going forwards, with a lot of new, young blood coming through.
"Although there is going to be a reduction as a result of failure, we will still be paying top dollar. Our budget cap for next season will be £4.4m, which is the same as the English clubs.
"We aren't going below what Leicester or Northampton spend. If they can compete in the Heineken Cup on that budget, then so can we."