Liz Kendall’s ideas about reforming the economy by promoting co-operatives are vague and could lead to back-door privatisation, the head of the UK’s co-operatives federation has warned.

Nick Matthews, the chair of Co-operatives UK, praised Ms Kendall for consistently raising the issue of more economic democracy but warned that a badly designed policy could lead to public services being sold off.

“To be fair, Liz Kendall, a Co-op Party member, has talked about co-ops from first being elected,” he told the Morning Star newspaper, praising a chapter of a book she had written on the subject.

“However these ideas are rather vague. Getting venture capital out of services like adult social care is a key objective, but the devil is in the how.

“There are co-op options but they require legal definition and changes to procurement rules to stop them being a staging post to privatisation. In order to work her ideas need much firmer foundations.”

Labour leadership hopefuls: Andy Burnham, Yvette Cooper, Jeremy Corbyn and Liz Kendall (PA; Getty Images)

The leadership candidate says she would hand power to people by promoting cooperative working practices in public services. She has also called for employee representation on the boards of companies.

Ms Kendall has written about her ideas for co-operatives in public services in a chapter for a book published by the think-tank Policy Network in 2014.

She wrote an article for the Morning Star newspaper today arguing that her economic policies would change the basis of power in the UK.

"Only by radically changing where power lies will we make Britain a more equal place in which to live," she wrote.

"I want to revive the Labour tradition of people power, taking us back to our party’s roots in trade unions, co-operatives and mutuals. I want to give voice to millions of people who see the changes they want to make in the world but feel powerless to do so. And I want to see workers having a far greater say over and stake in the companies they work for."

Labour leadership: The Contenders Show all 4 1 /4 Labour leadership: The Contenders Labour leadership: The Contenders Jeremy Corbyn Jeremy Corbyn started off as the rank outsider in the race to replace Ed Miliband and admitted he was only standing to ensure the left of the party was given a voice in the contest. But the Islington North MP, who first entered Parliament in 1983, is now the firm favourite to be elected Labour leader on September 12 after a surge in left-wing supporters signing up for a vote. PA Labour leadership: The Contenders Liz Kendall Liz Kendall has been labelled the Blairite candidate throughout the contest, which partly explains why she has failed to attract the support needed in a party that has drifted even further from the centre-ground of British politics since the election. She has faced criticism over her relative lack of experience, having only served as an MP since 2010 and having no experience of ministerial or shadow cabinet roles. But that very lack of experience allowed her to initially make a pitch as the only candidate offering real change and a real break from the Blair/Brown/Miliband years, until Jeremy Corbyn entered the race and shifted the whole debate to the left. She is set to finish a disappointing fourth. PA Labour leadership: The Contenders Andy Burnham Andy Burnham started out as the front-runner in the leadership election, seen as the candidate of the left until Jeremy Corbyn entered the race. The former Cabinet minister has found himself squeezed between the growing populism of Corbyn’s radical agenda and the moderate, centre-left Yvette Cooper, not knowing which way to turn. It has attracted damaging labels such as ‘flip-flop Andy’, most notably over his response to the Government’s Welfare Bill. He remains hopeful he can win enough second preference votes to take him over the 50 per cent threshold ahead of Corbyn. PA Labour leadership: The Contenders Yvette Cooper.jpg Yvette Cooper has put her experience and achievements in government at the heart of her offer to the Labour party. She played a key part in setting up Sure Start in Tony Blair’s government and has pledged to continue her record on delivering for young families by promising a “revolution in the way families are supported” by introducing universal free childcare. She has also championed her role as a full-time working mother, taking pride in telling audiences that she does the school run for the kids before her day starts as a politician. But she has been criticised for being too wooden and lacking in passion and her attacks on Liz Kendall for “swallowing the Tory manifesto” at the start of the leadership contest have been criticised for helping Jeremy Corbyn brand all three mainstream candidates as ‘Tory-lite’. PA

Under the Coalition similar policies of public sector mutuals were promoted by the Government, most notably health minister Norman Lamb.

Co-operatives come in two broad flavours: workers’ co-operatives and consumer co-operatives.

In workers’ co-operatives employees own and run the firm on an equal basis rather than shareholders; in consumer co-operatives people who use the service provided by the firm have some stake in its running and own it collectively.

Co-operatives UK is the main national member organisation for co-operatives and is entirely separate from the well-known Co-operative Group chain of grocery stores and other services.