Labour needs major 'rethink', warns David Miliband

David Miliband has called on Labour to admit "loud and clear" what it got wrong while it was in power and urged the party to embrace radical public- service reform.

Although he praised the leadership of his younger brother Ed, his call for "restless rethinking" by Labour is bound to be seen as a sign that he has some concerns about the party's direction and progress.

Writing in the New Statesman magazine today, the former Foreign Secretary re-entered Labour's debate about its strategy by saying: "Our attacks on the Tories will not work if we are not clear about what we did. We should say loud and clear where we made mistakes, but we should also insist that the gains far outstripped the mistakes."

David Miliband urged his party to reject the "Reassurance Labour tendency", a traditionalist approach favoured by Lord Kinnock and Lord Hattersley, the party's former leader and deputy. He warned: "For some, this will be seductive... Reassurance about our purpose, our relevance, our position, even our morals. Reassurance Labour feels good. But feeling good is not the same as doing good – and it gets in the way when it stops us rethinking our ideas to meet the challenges of the time."

He said Labour must show they are "reformers of the state and not just its defenders", adding: "The weaknesses of the 'big society' should not blind us to the policy and political dead end of the 'big state'. The public won't vote for the prescription that the state is the cure for all ills for the good reason that it isn't."

David Miliband also called for reforms to "modernise the party itself" – a move which could weaken its links with its trade union founders – and said Labour should not alienate the business community. "At the last election, not a single major business endorsed Labour and we cannot afford that again," he said.

He added: "We will win again only when two conditions are met. First, that we fully understand in a deep way why the electorate voted against us in 2010. Second, that we clarify the kind of future we seek for Britain, and the means to achieve it, in a way that speaks to the demands of the time."

Since narrowly losing the party's leadership election to his brother in 2010, David Miliband has largely kept out of an intense internal debate about how Labour should fight back. Last night Ed Miliband's allies insisted he was "entirely relaxed" about David's remarks.

David Miliband argued that Labour must establish "far more clearly" which parts of Tony Blair's and Gordon Brown's record in government need to be defended, "not just join the blanket Tory denigration".

But his call for Labour to admit its mistakes will be seen as a coded criticism of Ed Miliband and the shadow Chancellor Ed Balls. If he had won the leadership, David Miliband would have tried to clear the ground by making a candid early statement about Labour's failings on the economy during its 13 years in power.