There are numerous alternatives for encoding sequences of Unicode code points, each with its own pros and cons. UTF-8, UTF-16, UTF-32, and various compression schemes emphasize backward compatibility, or space savings, or rapid, random access of characters, or whatever. Different designs optimized for different benefits, with different associated costs. The UCS character sequence is the universal thing, but how it is represented should be optimized for the application.
It sounds as though this proposal is only about minimizing the number of bytes needed to represent a sequence of UCS characters, but ISO 8859-1 was never designed as a minimal-space representation of UCS characters. Its design reflects entirely different goals. If all you care about is an internal (not externally visible) representation that minimizes string size, you should do a proper statistical analysis first. You will find, for example, that the curly quotes and dashes that are nearly ubiquitous in serious English text and the Euro character so fundamental to international economics are far more commonly included in Java strings than are most control characters. Yet control characters are a part of ISO 8859-1, and those vastly more useful characters are not. Why, if your goal is to optimize for space, would you privilege so many obscure control characters in your default, internal representation, yet force a switch to a different encoding for any string on a blog containing an m-dash or on an e-commerce site containing a Euro sign?
Instead, if it's all about space, and it is an internal, hidden representation, you do a proper statistical analysis of exactly what it is you most need to represent, and either assign bytes in inverse proportion to commonness, or you use a proper information-theoretic compression "encoding" scheme based on the results of your analysis and your weighted goals. Or you stick with the existing, standard, run-anywhere representation Java has used since the beginning.
Either way, switching to ISO 8859-1 for this makes no sense.