Scrap cash Isas to fund £1,000 investment grant for every child, Chancellor told

The cash Isa should be scrapped in its entirety, according to a major investment platform. Cash Isas allow savers to put away up to £20,000 each year, and not pay tax on the interest. The cash Isa limit is set to fall to £12,000 for under-65s from April 2027. But investment platform IG says the money the government spends providing this tax break would be better spent on an investment grant for children. Under its proposal, each UK-born child would be given £1,000 to invest in a junior stocks and shares Isa, in a bid to encourage investing from an early age. Junior stocks and shares Isas have a £9,000 annual tax-free limit on contributions, rising to £20,000 for the adult version. IG estimated that scrapping cash Isas could generate up to £610million a year in tax receipts by 2032-33, while the cost of the grant would be approximately £700million a year. Investing for the future: IG wants John Healey to scrap cash Isas in favour of an investment grant for each child born in the UKIG suggested that scrapping the cash Isa would not involve taxing existing cash Isa balances, which would retain their tax-free status. Bank of England data showed households added about £48billion to cash Isas in 2024-25. If the cash Isa was scrapped, IG said 51 per cent of the total would instead be held in taxable savings accounts, with people paying an effective tax rate of 17 per cent. Cash Isa contributions continue to dwarf growth in stocks and shares Isas.Cash Isa subscriptions rose by £26.1billion in 2024-25, up 37.5 per cent year-on-year. Stocks and shares Isa contributions increased by £6.1billion in the same period, IG said. 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 in order to boost the ailing economy. IG platform said fresh incentives were needed to show the government was 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.'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.' Don't wait until Budget day. You need to start protecting yourself nowI'm Simon Lambert, publisher of This Is Money, and you need to know that your pension, savings and property could soon be under attack. On October 28, Andy Burnham’s government will set out its Budget. We don't know what they will do, but we do know about tax raids already on the way. The best thing you can do is get prepared. So I've called on some of Britain’s leading financial experts to create my new six-week plan. I'll cut through the noise and take you step-by-step through everything you need to do to protect your money. Don’t wait. Click here and sign up to Protect Your Money now. Cash Isa limit changing The amount of money that can be saved tax-free in cash Isas will be cut 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 one account or spread across multiple Isa products.People over the age of 65 will still be able to save up to £20,000 in cash. The annual tax-free allowance for stocks and shares Isas is also remaining the same, at £20,000.Why cash Isas are still popularAn easy access cash Isa can be a good option for people who want to dip into their pot occasionally or build a rainy day fund. Many people also still feel more comfortable with their money in cash accounts rather than in stocks and shares, even though the former can be eroded over time by inflation. Investing in stocks and shares, while generally offering better returns over the long term, comes with risks. It's advised not to invest any money you will need to access in the next five years, to ride out stock market ups and downs. Harriet Guevara, chief savings officer at Nottingham Building Society, said: 'Cash ISAs are important to millions of hard-working individuals and families who value the option of using them to support their financial goals. 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.'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.'IG urges Labour to avoid capital gains tax increaseOn top of calling for cash Isas to be axed, IG has urged Labour to avoid raising capital gains tax in next month's Budget. Capital gains tax is levied on profits from assets ranging from shares to second homes, buy-to-let properties and personal possessions. 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, whether incrementally or by aligning capital gains tax with income tax rates. IG said introducing higher capital gains tax rates would be 'fiscally illiterate'. Previous IG analysis found that equalising capital gains tax rates with income tax could reduce Treasury coffers by approximately £7.8billion a year, as higher rates could discourage investors from selling assets, reducing taxable disposals and ultimately lowering tax receipts. Healy said Labour must avoid raising capital gains tax as higher rates 'could discourage investment at precisely the moment we need to be encouraging it'. Protect Your Money – sign-up to our six-week plan The Budget is coming – but are you prepared? Sign up to our six-week plan and Simon Lambert and his team of financial experts will reveal how to Protect Your Money. If you're a subscriber, it's completely FREE.> Sign-up to Protect Your Money