Announcing a half-yearly budget update in parliament, Sunak said he was increasing the threshold at which workers start to pay National Insurance, or social security, contributions by 3,000 pounds ($A5,305) this year.
"That's a 6 billion pound personal tax cut for 30 million people across the United Kingdom," he said, adding the cut was equivalent to more than 330 pounds a year per worker, making it the largest single personal tax cut in a decade.
But Sunak stuck to his plan to increase National Insurance contributions from next month, part of his plan to fund more spending on health and social care after the COVID-19 pandemic.
In his Spring Statement, he announced a reduction of one pence in the pound in the basic rate of income tax in 2024 while a cut in fuel duty of five pence per litre would start later on Wednesday and last until March next year.
Sunak and Prime Minister Boris Johnson have been under pressure, including from MPs within their Conservative Party, to do more to help households as they struggle with the rising cost of living.
Sunak announced new forecasts showing the UK economy will grow more slowly this year than previously predicted, hit by uncertainty caused by Russia's invasion of Ukraine, and that inflation will be much higher.
The forecasts drawn up by the Office for Budget Responsibility (OBR) showed the economy was likely to grow by 3.8 per cent in 2022, a sharp slowdown from a forecast of 6.0 per cent made in October.
Inflation, as measured by the consumer price index, is now seen at 7.4 per cent in 2022, compared with October's forecast of 4.0 per cent.
Earlier, data showed consumer price inflation in the United Kingdom hit a 30-year high of 6.2 per cent last month, driven by soaring costs for energy and food, which poorer households especially may find hard to cut back on.
The OBR forecast that gross domestic product would grow by 1.8 per cent , 2.1 per cent and 1.8 per cent in 2023, 2024 and 2025.
In October, the OBR had forecast growth of 2.1 per cent, 1.3 per cent and 1.6 per cent over the next three years.
