Rachel Reeves is right to scrap the cash ISA and here’s one £6bn reason why

I was one of the first journalists to write about the launch of the Individual Savings Account () and it looks like, if all the rumours are to be believed, I will be one of the last.

Back in 1998, as a young personal finance reporter, I wrote about how the new Chancellor – – was going to replace the personal equity plan (Pep) with a revolutionary new type of savings product – the ISA.

Peps as they were known – were a tax-free savings account that allowed Brits to invest in shares, but the shares had to be in home-grown companies and savers were only allowed to hold a small – 25% – amount of cash in them.

Brown replaced Peps with two types of ISA. the stock and shares which allowed investors to take advantage of global stockmarkets as well as British shares; and the cash ISA which was like a basic savings account, just tax free.

At the time you could only have one of each; and you were only allowed to invest £3,000 in a cash ISA and £7,000 in a stocks and shares one.

I won’t bore you with any more history except to mention that since then we have seen many different types of ISAs launch – Lifetime ISAs, Junior ISAs, innovative finance ISAs.

Now many of us have an ISA but I’ll take a bet that the only ones maxing out their allowances have been those who can afford to, i.e. not the majority of Brits.

has been charged with growing the UK economy and she’s got to make some tough decisions. It is not surprising her attention has been drawn to the cash ISA, because any thing with the badge ‘tax-free’ wil ultimate cost taxpayers and ergo the Treasury.

If it’s going to cost it might as well have some payback, and City fund managers who have Reeves’ ear are pointing out that the money stuck in cash ISA is better off in investments that could help ‘grow’ the British economy.

While the intentions of the City may not be about the best interests of savers, fund managers may also be thinking of the fees they can charge, I do have to agree with some of the sentiments. In the last few day I am coming round to think that cash ISAs should probably go.

One expert is urging the chancellor to look at merging the cash and stocks and shares ISA(s).

Dame Helena Morrissey says cash ISAs have helped contribute to a £6bn plus savings gap with millions of savers having missed out by not putting their money in a stocks and shares ISA, and keeping it in poorly-performing cash ISAs.

The savings gap could be even bigger because Baroness Morrissey, who successfully managed billions of pounds of savers’ and investors’ cash for L&G and Newton, explains that £6bn gap is just the gender ISA gap, the amount men have made compared to women when taking ISA cash into consideration.

Baroness Morrissey believes that merging the cash ISA with the investment ISA may help to plug this gap. It might just encourage all of us to save, not must more women.

But here we have the problem, the thing that very few Brits can get their head round, because shares are risky, they come with the potential of loss. Of course if you invest a small amount each month over many years you can stand to gain a lot more than bog standard cash ISA.

Getting us Brits to invest more is necessary, but it is a big shift.

After all Baroness Morrissey, the founding ambassador of AJ Bell Money Matters, revealed that she did not start investing for herself until lockdown. This admission comes from a woman twice named bond manager of the year, she knows her stuff.

She said: “Cash ISAs are considered a safe haven by women in the UK, potentially protecting wealth during market downturns but with pitiful growth in the long term compared with the average returns seen from investing.”

Although AJ Bell’s campaign is aimed at getting more women to invest Morrissey wants the financial services industry to tackle an issue that could unlock billions in potential wealth for women (and men) across the UK and increase investment in markets.

Getting Brits their ‘share

Laura Suter, director of personal finance at AJ Bell, said: “It’s understandable that people think investing is scary – it can feel like a daunting world to enter. But all too often we let perfection be the enemy of progress – you don’t need to be an investing guru with a huge stash of wealth to get started. On many platforms you can start from just £25 a month and build up from there, as you get more experience and comfortable with investing.

 “Sticking to cash is a smart move for any money you don’t want to take risk with or you know you need to spend in the next few years, but it’s a terrible place for long-term wealth.

Suter said if you had saved £1,000 a year into Cash ISAs since they were launched in 1999 and earned the average Cash ISA , you’d have a pot worth £34,400.

“But this would have failed to keep up with inflation, meaning your spending power would have been eroded. In real terms you’d have been worse off. If instead you’d invested in the average return of a fund investing in global markets, you’d have a pot worth £83,600 after that same period – almost £50,000 more*.

How to close the ISA gap

AJ Bell is urging savers and the financial services industry to embrace investing, and make it easier for everyone.

1. Start small

AJ Bell found many women hesitate due to perceived risk or complexity, but starting small can build both wealth and experience over time. Stocks and Shares ISAs generally outperform Cash ISAs in the long run. You can start investing from as little as £25 a month and investing gradually can increase confidence as well as long-term savings. Some platforms allow you to keep your money in an account paying interest until you decide where to invest

2. Make investing simpler

Morrissey said the industry can play a key role in closing the gender investment gap by offering better support and education. While investing is no longer a ‘boys’ club,’ more can be done to make it welcoming for women and beginners alike. Simplifying investment choices can help combat choice paralysis – whether through a streamlined range, better tools, or a clearer customer journey. “Most importantly, ditch the jargon. At AJ Bell Money Matters, we believe in plain English, not confusing acronyms. By making investing more accessible, we can empower more women to take control of their financial futures.”

3. To the government

Systemic change is needed to make investing more accessible. With multiple ISA types, it’s no surprise many people feel overwhelmed. Simplifying ISAs would encourage more participation, especially among women. AJ Bell advocates for a unified ‘One ISA,’ merging the best features of existing ISAs to make saving and investing easier. Better support and guidance are also crucial, as not everyone can access regulated financial advice. The FCA and Treasury’s plans for targeted support are a step in the right direction.