PRIME Minister David Cameron has challenged Labour to hand back tax the party allegedly helped a key donor avoid, saying it was needed for schools and hospitals.

Last week businessman John Mills said he had given Labour £1.65 million worth of company shares after being advised the move would be the most tax efficient method of donations.

Mr Cameron challenged Labour leader Ed Miliband at Prime Ministers' Questions (PMQs).

He said: "This is money that ought to be going into our health service. It ought to be going into education. It ought to be going into training young people."

Labour says the donation was declared in full to the Electoral Commission in line with party funding rules.