Peter Mandelson has warned Labour not to go too far in bringing in labour market reforms to benefit workers and hit out at Unite’s Sharon Graham, while describing the past decade of party leaders as “weak, weak, weak”.

The Labour peer, a former business secretary and architect of the 1997 election victory, gave a combative speech to a City of London Corporation dinner at the party conference, where he warned against making labour market reforms that swung towards the “other extreme”.

“We have to be careful about labour market reform,” he said. “It’s not easy to say to my party, who are very keen to take the pendulum back from where it has been as a result of party political legislation introduced by the Conservatives.

“But we have to be careful about that pendulum so that it ends up in the centre and not the other extreme.”

He said he was in favour of repealing some anti-strike legislation brought in by the Conservatives but he did not want businesses to “get the wrong idea” that Labour was abandoning flexibility in the labour market at a time of great technological change.

Labour has committed to throwing out Conservative anti-strike legislation since 2010, with labour market reforms to ban zero-hours contracts and improve employment rights under the portfolio of Angela Rayner, the party’s deputy leader and shadow levelling up secretary.

Asked about how Labour would reconcile the competing agendas of business and workers, Lord Mandelson said it would be very difficult.

“I’m afraid the likes of Sharon Graham and other far-left trade union leaders, they do measure their success by the size of their union strike fund,” he said. “My answer to them is twofold: the election of a Labour government would do a darn sight more for their members and their workplaces than any strike fund.

“And the second thing is what we need in this country is good strong trade union leaders who are responsible, skilled collective bargainers who will work with management in order to create better workplaces and more success for businesses and public services.

“Some of the trade union legislation has gone too far in my view. But we have to be very careful in my view about how we reform them.

“It sends a very difficult signal to people if business and international investors get the wrong idea that we are abandoning flexibility in our labour market in a fast-changing economy with technologically driven working practices. We need trade unions but we need trade unions of the 21st century not the last one.”

During the speech, Mandelson also said he hoped the UK could, a long way in future, “reconsider its relations” with EU members.

He said Labour would not embrace another EU referendum any time soon but “one day” the EU would reach a conclusion that it could not keep expanding with a single tier of membership and integration. He said the EU was “going to have to change and create a new model”.

Mandelson said there would be an “inner core and union of probably people who use the single currency” and an “outer core of those who don’t use the single currency, a community”.

“It’s not going to happen overnight. It’s not going to happen any time soon … but I do hope at some stage in the future that evolution takes place at which point I think it would be open for the UK to reconsider its relations with its nearest neighbours.”

In highly critical comments about Ed Miliband and Jeremy Corbyn, he also said the last decade before Keir Starmer’s leadership had seen the party with “weak policies, weak unity, weak leaders: weak, weak, weak”.

“We failed as a party to offer a proper alternative to the Conservatives and that is the importance of what Keir has done: reclaiming the Labour party and switching us back from weird to normal is what he has done and I congratulate him,” he said.

Mandelson, who sat in the front row of Labour conference alongside shadow cabinet ministers on Monday, said Starmer possessed the core attributes of a potential prime minister in that he had “no ideological hang-ups about working with business and he is not wobbly on defence and national security”.

He also backed the idea of fresh public-private partnerships, saying they could still work despite discredited PFI deals of the past.

Mandelson added that one of the major challenges for Starmer would be planning reform. “Now Starmer has really got to grasp this nettle,” he warned. “The planning system is holding back the change our country needs.”

Mandelson has long been an advocate of Labour improving relations with business and is founder and chair of a consultancy called Global Counsel.
He said the goal should be “hand in glove working together, public and private, government and business, nothing wrong with that”.

At the start of his speech, Mandelson also joked that Labour is now so mainstream on business that the City of London Corporation was “almost to the left” of it.