Labour must shake off its "austerity-lite" mantra and put forward a "radical vision of hope" at the next election or risk losing union support and becoming an irrelevance on the fringes of British politics, according the leader of the UK's biggest union.

Len McCluskey, general secretary of Labour's biggest financial backer, Unite, called on Ed Miliband to seize the initiative in the public debate following the budget by making the case for investment, growth and jobs.

McCluskey said the UK was going through "genuinely extraordinary times" and warned that if Miliband failed to offer a radical alternative, the party could become irrelevant and he would be consigned to the "electoral dustbin".

"If Labour fail to grasp the moment then I think that the political landscape is likely to change dramatically. I think the relevance of Labour as a party would be brought into sharp contrast," McCluskey told the Guardian.

He said that unless Labour set out a clear economic vision that "rejected the failed neo-liberal experiment of the past 30 years" and focused on growth and jobs, Unite and other unions would be forced to re-examine their relationship with the party.

"In many respects Labour is at the crossroads of its future, of its purpose … if it doesn't stand up for the aspirations of ordinary people – the 99%, if you like – then what is its purpose? If we don't win the next election, that will be critically examined and the political landscape could change dramatically."

Unite, which has about 1.5 million members, backed Miliband's leadership bid in 2010 and has since donated £6m to the party through membership fees. Any withdrawal of financial support would be financially crippling for Labour.

McCluskey expressed his anger over the Labour leaderships's failure to oppose the coalition's emergency welfare bill this week. Forty-four Labour MPs rebelled during the Commons vote and McCluskey has written to them to offer Unite's support, saying they "saved the party's honour".

Unite has put forward detailed alternatives to the government's austerity measures, including the creation of a British investment bank, a house building programme and an increase in the minimum wage. McCluskey said he was hopeful that Labour would take notice and begin to flesh out a more radical programme over the next 18 months, giving confidence to those struggling under coalition policy.

"The reality is we need the Labour party to put forward what looks like hope, what looks like a vision of hope, because at the moment there is nothing but fear and despair by this government."

McCluskey, who is engaged in a leadership election at Unite, added: "If it doesn't, if we fail, then it won't only be Unite, it will be other unions as well that will have to seriously consider that relationship … there may be another workers' party, another party of labour may emerge."

In an attempt to influence the future direction of the Labour party Unite is attempting to get candidates who share the union's principles of "collectivism, solidarity and community" selected as parliamentary candidates before the next general election.

"We would hope, if we get a Labour government back into power next time, we would have quite an influential group, maybe 50 or 60 Labour MPs, who had our values," he said.

The union is also trying to build its presence in communities around the country, working with local campaigns and direct action groups such as UK Uncut. It plans to offer a credit union and welfare advice service and has launched a community membership scheme for people who are out of work.

"The idea is to link our members in work to the communities in which they live so that Unite is seen as being there for them. Because if we just recognise that 80% of the governments cuts are still to come in … what you will have is millions of people with nowhere to turn."

Guardian