Investment platform IG has called for the cash ISA to be scrapped altogether, arguing that any tax raised from doing so should be used to fund a £1,000 investment grant for every child born in the UK.
Cash ISAs currently allow savers to put away up to £20,000 each tax year with any interest earned free from tax. The cash ISA limit for under-65s is set to fall to £12,000 a year from April 2027, though an overall £20,000 limit across ISA products will remain.
Proposal to fund £1,000 grants
Under IG's proposal, each UK-born child would be given the cash to invest in a junior stocks and shares ISA. The platform's calculations claim that closing cash ISAs to new contributions could raise up to £610 million a year by 2032-33.
IG argues this would fund the majority of what is needed to give every UK-born child £1,000, which it estimates would cost £700 million a year. The proposal would not involve taxing existing cash ISA balances.
CEO calls for cultural shift
Michael Healy, CEO of IG Consumer, said: “We need to think much more radically about how we get people into investing and get them investing more.
“For decades, we have built a culture around saving cash. If we want households to build greater financial resilience, we need to make investing a normal part of life.
“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.
“Giving every child £1,000 to invest from birth would be a powerful way to normalise investing, with 18 years of compounding growth delivering the investing message in a way that politicians could never manage.”
Tax rules on non-ISA savings
Tax on non-ISA savings applies only once interest earnings exceed certain thresholds. Basic rate taxpayers pay 20% tax when they earn more than £1,000 a year in interest. Higher rate taxpayers pay 40% tax when they earn more than £500 in interest a year.
Additional rate taxpayers have to pay 45% on any savings interest they make.
