UK Labour leadership contender Andy Burnham has warned that Labour’s future “hangs in the balance” as he insisted he was the only candidate able to unite the party.

The shadow health secretary told activists in Manchester there is a “good deal of common ground” between him and Jeremy Corbyn on some of the major policy areas, including transport and education, as he reached out to supporters of the frontrunner.

But he warned there is a “real risk of division” following the increasingly bitter leadership contest and told the party it must “unite”.

Burnham also told supporters he would oppose the government’s contentious Welfare Bill if he wins the contest.

Speaking at the People’s History Museum in Manchester, he said: “Labour can’t hark back to 70s or 80s style solutions but instead needs to open its mind to radical ideas of this kind that could reinvigorate our democracy at a local level and lift the lives of millions.

“So on the biggest issues of all – on the EU, the economy and public services – there is now a real choice before our party.

“And the way we choose to go will define us as a political force in the rest of this century.

“Coming out of this contest, there is a real risk of division and that is why I am presenting my vision today as the only one that can unite our party.

“And I believe I am the person who can unite us too.”

Burnham said Corbyn had brought “real energy to this race” and he would “involve” his rival in his team from the outset.

But he said it was crucial for Labour to have a “credible” plan for public finances and criticised the Islington North MP’s opaque stance on Britain’s future in the EU as well as his plans for renationalisation of utilities and “printing money” to pay for infrastructure.

“My worry is that policies like these would leave us open to losing the argument on the economy on day one.”

He added: “I won’t let our party repeat the history of the early 1980s when we were more interested in fighting each other and we left the pitch clear for Margaret Thatcher to bulldoze her way through Labour communities up and down the country.

“I won’t let those Bullingdon Boys – the heirs to Thatcher – do the same to people in 2015 as she did in 1985.

“That was the year I joined Labour here in the North West. I have given my life to it ever since.”

After his speech, Burnham took questions from party supporters and activists and was asked how Labour’s MPs had become so out of touch with the grass roots of the party.

My worry is that policies like these would leave us open to losing the argument on the economy on day one

Burnham said the top of the party “stopped listening” and he knew that better than anybody because, as culture secretary, he was booed while speaking at a Hillsborough memorial event at Anfield in 2009.

He then went back to government and was instrumental in the setting up of an independent panel to reinvestigate the disaster.

Burnham said: “I was the representative that day from a very out-of-touch government who had not been listening for years.”

And to cheers and applause from party members, he added: “If we had listened to our councillors through our term in government we would have done a simple thing – built more council houses.”

Burnham also praised former party leader Ed Miliband, as he responded to a question on new research showing that the gap between the pay of workers and top bosses is greater than it has ever been.

Burnham, speaking of Miliband, said: “He said something that Labour people have not said for as long as I can remember – he said the gap matters. The gap matters.

“What makes us Labour is we worry about these gaps in society.

“We need to publish the pay gap in each company ... so that people can see what companies are trying hard to be fair to those at the bottom and the top.”

Corbyn said: “We welcome Andy’s inclusive tone towards our campaign and the view is mutual – if we win we would involve Andy in our team if he was willing. From day one, whoever wins must pull the party together.”

Meanwhile, challengers Yvette Cooper and Liz Kendall have denied reports that Lord Mandelson approached them in a bid to suspend the election by persuading the pair and Burnham to drop out en masse.

While Cooper said she had not been approached directly by the grandee and said she was unaware if her campaign team had been contacted, Kendall insisted that neither she nor her office had spoken to the peer.