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I'm not sure what you mean by "labour would still need to be the biggest party, which means making big gains."
Labour would be the biggest party, but gains would be made by not running against each other.
Thinking about it a bit more, I think this is a deal which could be sold to labour party members who support Corbyn, and a possible way of finding an amicable resolution to the, now obvious, war between members and the PLP.
The problem is, I can't imagine the PLP agreeing to it. I'm going to send a message off to my MP tomorrow.
Good thing they have a plan.
I hope labour and the lib dems accept the green proposal and do the right thing for the country. Very possible the SNP would support the idea in principle. And hey! Unity government!