The former Labour leadership contender Rebecca Long-Bailey has called for Labour to drop its cautious approach to the economy and fight the next election on a radical manifesto including state ownership and a living standards contract between government and public.

In her first significant economic policy intervention since the 2020 leadership contest won by Sir Keir Starmer, Long-Bailey said Labour would need transformative policies if it was to win the next election.

Long-Bailey, who as shadow business secretary was one of the leading figures in Jeremy Corbyn’s team, said her proposed contract would deliver a defined decent standard of living for all citizens, guaranteeing housing costs, food and fuel bills were affordable.

A minister for living standards at cabinet rank in the Treasury with the same standing as the chief secretary would ensure the contract was delivered and legally enforced, she said.

Starmer, who said earlier this year the “slate had been wiped clean” since the 2019 election, will make a speech on the economy in Liverpool on Monday.

Speaking to the Guardian, Long-Bailey said she understood the difficulties in announcing policies too far in advance of a general election because it gave Labour’s opponents the chance to either steal policies or pick holes in them. But she added: “You can’t fatten a pig on market day.”

The fiscal responsibility pledged by Starmer and the shadow chancellor, Rachel Reeves, was necessary but not enough on its own to win back the trust of voters.

In recent months, Labour has opened up an opinion-poll lead and is currently more trusted to deal with the UK’s cost of living crisis. Long-Bailey warned this was unlikely to last.

“It is naive to think Labour can maintain a poll lead without policies that are radical and transformational,” she said.

She rejected the idea that Labour had lost the last general election because its economic policies had turned off voters. “There was a whole range of reasons why we didn’t do well but supporting public ownership was not one of them. All the evidence is that our plans to nationalise Royal Mail, rail and water were very popular.”

Amid fears on the left of the party that Starmer is planning to abandon plans to nationalise the public utilities, Long-Bailey said state ownership was more popular than ever with voters seeking an end to the “great privatisation rip off”.

She added: “We are living through the worst cost of living crisis in decades, with household fuel and water bills soaring, while rail fares continue to rack up.

“It’s critical that Labour remains on the side of public opinion here, and that we go into the next election with our existing policies on public ownership.”

Long-Bailey said her contract would include changing the Companies Act to make directors have a legal duty to employees as well as shareholders, and the ringfencing of part of profits for wage increases. The package would aim to restructure the UK economy to redress the balance towards workers.