Investment platform IG has called on Chancellor John Healey to abolish cash Isas entirely and use the savings to fund a £1,000 investment grant for every child born in the United Kingdom.
Under the proposal, every UK-born child would receive £1,000 deposited into a junior stocks and shares Isa to encourage long-term equity investing from an early age.
Cash Isas currently allow savers to put away up to £20,000 each year without paying tax on interest. IG estimated that scrapping the tax break could generate up to £610 million a year in tax receipts for the Treasury by 2032-33, offsetting most of the estimated £700 million annual cost of the child investment grant.
The investment platform suggested that ending cash Isas would not involve taxing existing cash Isa balances, which would retain their tax-free status. According to Bank of England data, households added about £48 billion to cash Isas in 2024-25. IG projected that if cash Isas were scrapped, 51 per cent of that total would instead be held in taxable savings accounts, with savers paying an effective tax rate of 17 per cent.
Shift from cash savings to stock market investment
Cash Isa contributions continue to dwarf growth in stocks and shares Isas. Subscriptions to cash Isas rose by £26.1 billion in 2024-25, representing a 37.5 per cent year-on-year increase. In contrast, stocks and shares Isa contributions increased by £6.1 billion over the same period, while cash accounted for 64 per cent of all adult Isa accounts subscribed to in 2024-25.
The government wants more people to invest in British firms to boost the ailing economy. IG said fresh incentives were needed to show ministers are serious about "moving more household wealth into productive investment".
Michael Healy, chief executive of IG Consumer, said: "If we want households to build greater financial resilience, we need to make investing a more normal part of life."
Healy added: "Our modelling shows that phasing out cash Isas could ultimately generate hundreds of millions of pounds a year: enough to cover most of the annual cost of giving every UK-born child £1,000 to invest."
Allowance reductions and consumer savings preferences
The recommendation comes as the government prepares to reduce the cash Isa allowance. The amount that can be saved tax-free in cash Isas will fall from £20,000 to £12,000 a year for under-65s from April 2027. Former chancellor Rachel Reeves announced the change in the 2025 Budget to encourage more investment in stocks and shares.
The current £20,000 annual allowance can be used in a single account or spread across multiple Isa products. Savers over the age of 65 will still be able to deposit up to £20,000 in cash Isas annually, while the annual tax-free allowance for stocks and shares Isas remains at £20,000. Junior stocks and shares Isas have a £9,000 annual tax-free limit on contributions, rising to £20,000 for the adult version.
An Individual Savings Account, or Isa, is a UK tax-exempt savings and investment wrapper. Easy access cash Isas remain popular for individuals who want to dip into their pot occasionally or build a rainy day fund. Many people feel more comfortable keeping money in cash rather than stocks and shares, despite the risk that cash savings can be eroded over time by inflation.
While investing in stocks and shares generally offers better returns over the long term, it comes with financial risk. Savers are advised not to invest any money needed within the next five years, allowing time to ride out stock market ups and downs.
Harriet Guevara, chief savings officer at Nottingham Building Society, defended cash Isa accounts. "Cash ISAs are important to millions of hard-working individuals and families who value the option of using them to support their financial goals," Guevara said. "Three fifths of our fixed-rate ISA customers used the full £20,000 allowance last financial year, and among those saving in-branch, that figure rose to 65 per cent."
Guevara added: "We support the government’s ambition to get more people investing, but simply cutting the cash allowance won’t do it. Better financial education is critical, giving people the option to save or invest in a way that fits their goals and risk appetite."
Capital gains tax warnings for upcoming Budget
In addition to calling for cash Isas to be axed, IG has urged Labour to avoid raising capital gains tax in the Budget on October 28, when Andy Burnham's government will set out its fiscal plan.
Capital gains tax is levied on profits from assets ranging from shares to second homes, buy-to-let properties, and personal possessions. Former chancellor Rachel Reeves previously increased the lower main rate of capital gains tax from 10 per cent to 18 per cent, and the higher main rate from 20 per cent to 24 per cent. Current Chancellor John Healey may seek to increase these rates further, either incrementally or by aligning capital gains tax with income tax rates.
IG described introducing higher capital gains tax rates as "fiscally illiterate". Previous analysis by IG found that equalising capital gains tax rates with income tax could reduce Treasury coffers by approximately £7.8 billion a year, as higher rates could discourage investors from selling assets, reducing taxable disposals and lowering tax receipts.
Healy warned Labour against raising rates on asset profits, stating that higher capital gains tax rates "could discourage investment at precisely the moment we need to be encouraging it."
