BRITISH high street lenders are facing an exodus of top talent to international investment banks if shadow chancellor George Osborne&rsquo;s proposals to ban cash bonuses for retail bankers come to fruition, City headhunters warned last night.<br /><br />The proposals outraged the City, which decried the willingness of the Tories to put the UK at a disadvantage despite Osborne&rsquo;s insistence that he was not &ldquo;insensitive&rdquo; to the need of UK banks to remain competitive.<br /><br />Phil Marks, managing director of City recruiter Hamilton Chase, said: &ldquo;If politicians wish to cap remuneration it must be done across the board, otherwise there will be a brain drain towards investment banks which are still able to pay cash bonuses.&rdquo;<br /><br />And Ken Brotherston, chief executive of headhunter GRS, added: &ldquo;This shows an inherent lack of understanding of how the banking sector works.&rdquo;<br /><br />Top banking figures also sounded a warning bell for the future of the UK retail banks if the proposals become policy after next year&rsquo;s election.<br /><br />One source close to a UK bank said Osborne&rsquo;s speech was purely &ldquo;political&rdquo;, adding: &ldquo;Do we want to unilaterally disadvantage our financial sector? The Tory proposal would represent a victory for the academic economists who through their influence on policy were in large part responsible for a lot of the problems we have seen.&rdquo;<br /><br />Angela Knight, chief executive of the British Bankers&rsquo; Association, said the Tories&rsquo; proposals risked &ldquo;handing a competitive advantage to an ever-decreasing pool of investment banks&rdquo;.<br /><br />Her view was echoed by Treasury select committee chairman John McFall, who said the plans would leave investment banks like Goldman Sachs untouched. &ldquo;That&rsquo;s where really big bonuses are being made,&rdquo; he said.<br /><br />Baroness Valentine, leader of business organisation London First, called the plans &ldquo;a quick fix to a very complex problem&rdquo;, adding: &ldquo;We need to be very careful which levers we pull to what effect, particularly when it comes to creating an uneven playing field&rdquo;.<br /><br />Speaking at a Thomson Reuters event yesterday, Osborne called for an end to all cash awards at commercial banks and said the money earmarked for remuneration should be diverted onto balance sheets to support lending.<br /><br />&ldquo;I am calling on the Treasury and the FSA to stop retail banks paying out profits in significant cash bonuses, full stop,&rdquo; he said. &ldquo;That includes their investment banking arms.&rdquo; He said banks should pay bonuses in new equity capital instead. <br /><br />Osborne&rsquo;s proposals come after the UK and investment banks agreed to adhere to pay guidelines imposed by the G20 and the FSA, including rules on deferment, paying bonuses in shares and clawback measures.