David Miliband leadership bid attempts to exorcise ghosts of Blairism

David Miliband has made his first major attempt to break free from his Blairite image and broaden his appeal to party members by claiming Labour failed to take on the private sector during its 13 years in power.

The former Foreign Secretary, who remains the frontrunner in the contest to become Labour’s next leader, went further than ever before in attacking the role of banks and private investors in the financial crisis, as well as admitting to mistakes made in handling the economy. He warned the Government needed to intervene to curb “unaccountable market power and unacceptable market morals”.

In an attempt to win support from the left of the party and face up to New Labour’s shortcomings, he used a speech at a private seminar at the Demos think tank yesterday to argue Labour succeeded “when it is the radical reformer of the excesses of both the market and the state”. He added that “fundamental questions” had to be asked about the type of capitalism Britain wanted.

“Left unchecked, markets tend towards instability, insecurity, inequality and unsustainability – which is why they need to be effectively regulated,” he said. “Labour was right to focus on public sector reform. It helped save the NHS and transform our schools. However, we didn’t always have the same energy and focus in reforming the private sector.

“The role of government is to harness the potential of the private sector to drive a new era of wealth creation and shared prosperity. That requires private sector reform to addresses unaccountable market power and unacceptable market morals.”

While Mr Miliband remains a favourite to replace Gordon Brown, his allies realise he may be outflanked by his historic association with the right of the party. Ed Miliband, his closest rival, has been gaining significant support from Labour’s rank and file by positioning himself to the left of his older brother on issues such as his backing the “living wage” campaign.

Ed Miliband will give a speech today at the London School of Economics, giving his support to the campaign designed to encourage employers to pay all staff at least £7.16 an hour, or £7.60 an hour in London. He is expected to argue the adoption of the wage across Britain would potentially affect five million workers. “I want to lead a Labour Party that campaigns for change in people’s lives, not just for a change of government,” he is expected to say.

David Miliband has always been associated with Tony Blair having begun his political career as the former Prime Minister’s head of policy. He went on to work for Mr Blair in No 10 before winning a seat in 2001. Allies had privately been urging Mr Miliband to admit to Labour’s past errors and tell party members they had to face up to the challenges they face in making Labour electable again.

Yesterday, he also attacked the “explosion of pay inequality” and the gender pay gap, which continued under Labour. “Mega pay awards and bonuses, linked to activity rather than success, violate basic principles of merit and justice,” he said. “We shouldn’t be afraid to say this for fear of appearing anti-business. The truth is it’s in everyone interests – including the market – that we tackle the excesses.”

Ed Balls, a key adviser to Mr Brown, has also admitted Labour had not gone far enough in regulating the financial sector. “Who can now doubt that, despite the tougher measures we brought in, financial regulation was not tough enough,” he states in an article for Tribune magazine. “And on public services the government talked a technocratic language, using words like contestability, and seemed sometimes to suggest that private sector solutions were always better - when public services users just wanted guarantees of good schools, hospitals and policing.”