Scrap Cash ISAs to Fund Child Investment Grants, UK Investment Platform Urges

Investment platform IG has proposed that the United Kingdom scrap its cash Individual Savings Accounts (ISAs) entirely and instead use the resulting tax revenue to fund a £1,000 investment grant for every child born in the UK. The proposal aims to encourage investment from an earlier age and shift household wealth into more productive investments.

Under IG's plan, the estimated £610 million generated annually by scrapping cash ISAs by 2032-33 could largely cover the approximately £700 million annual cost of the proposed investment grants. These grants would be allocated to junior stocks and shares ISAs. Cash ISAs currently allow savers to deposit up to £20,000 annually without paying tax on interest. However, this limit is set to decrease to £12,000 for individuals under 65 starting in April 2027, a change announced by former chancellor Rachel Reeves to encourage stock and shares investment.

IG's analysis suggests that if cash ISAs were abolished, 51% of the funds would move to taxable savings accounts, incurring an effective tax rate of 17%. This contrasts with the significant popularity of cash ISAs, which saw household contributions of approximately £48 billion in 2024-25. In the same period, cash ISA subscriptions rose by 37.5% year-on-year to £26.1 billion, while stocks and shares ISA contributions increased by £6.1 billion. Cash ISAs accounted for 64% of all adult ISA accounts subscribed to in 2024-25.

Michael Healy, chief executive of IG Consumer, stated that making investing a more common part of life is essential for households to build greater financial resilience. He added that phasing out cash ISAs could generate substantial annual revenue, sufficient to fund the proposed child investment grants. IG also urged the government to avoid increasing capital gains tax, arguing that higher rates could discourage investment. Previous analysis by IG indicated that aligning capital gains tax with income tax rates could reduce Treasury coffers by approximately £7.8 billion annually due to reduced asset disposals.

While cash ISAs offer a safe haven for emergency funds and for individuals who prefer lower-risk savings, stocks and shares ISAs generally offer better long-term returns, albeit with inherent market risks. The government has expressed a desire to see more investment in British companies to stimulate the economy, and IG believes that fresh incentives are necessary to achieve this goal.