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Cuts of up to 40 percent in spending in some government department will see job losses throughout the public sector, where more than 50 percent of workers are trade unionists.
The political battleground will be dominated for the next few years by these cuts, and how Ed Miliband handles his party's response and his relationship with his union supporters will define his leadership and its chances of success.
The campaign for the leadership began when former Prime Minister Gordon Brown resigned on May 11, following his defeat at the May 6 general election.
David Miliband was quick to announce his candidature and was seen by all as the front-runner, and had been talked about before the general election as the likely next leader.
It was a surprise when David Miliband's brother Ed joined the battle. He soon became the main contender to David during a five- month campaign that was seen by public and commentators as boring and overly long.
Ed Milliband, aged 40, is the former environment secretary, and the younger brother of David. They are the sons of a Marxist academic with Polish-Jewish ancestry. Ed was educated at a municipal high school, and studied at the University of Oxford.
He worked for Brown when Brown was chancellor of the exchequer, the finance minister. He has represented an industrial area of the north of England in the House of Commons since 2005, and was a cabinet minister holding the environment portfolio for three years.