Media playback is unsupported on your device Media caption Ed Miliband: "I used a general term about dodgy donors to the Conservative Party, I am not saying it about Lord Fink"

Ed Miliband has accused Lord Fink of an "extraordinary U-turn" after the Tory donor appeared to drop his threat of legal action over tax avoidance claims.

Lord Fink had accused the Labour leader of making defamatory comments in the Commons about his tax affairs.

But the peer told the Evening Standard he did not want to sue Mr Miliband and the definition of tax avoidance was so broad that "everyone does it".

Mr Miliband challenged David Cameron to say whether he agreed with that view.

Downing Street said the tax evasion row was entirely a matter for Lord Fink and Mr Cameron's view was that "taxes that are due must be paid".

Meanwhile, BBC business editor Kamal Ahmed says he understands the Treasury is preparing legislation to tighten the rules on undeclared income held in offshore accounts.

Political donors

Lord Fink said he particularly objected to Mr Miliband's use of the word "dodgy" in his attack on Tory donors in the Commons.

He said: "Yesterday (Wednesday) I challenged Ed Miliband to repeat the accusations he made in the Commons - that I used an HSBC bank account to avoid tax and that I was a 'dodgy donor'. He did not. This is a major climbdown by a man who is willing to smear without getting his facts straight."

He did not mention the word "dodgy" in his letter of complaint to Mr Miliband following prime minister's questions.

But although the Labour leader stood by his words in the Commons about tax avoidance, he claimed that he had not been referring specifically to Lord Fink when he talked about "dodgy donors".

Mr Miliband said: "I was very clear about what I said about Lord Fink. Until his extraordinary U-turn 24 hours later, the thing he objected to was me saying he was engaging in tax-avoiding activities.

"I used a general comment about dodgy donors in the Conservative Party and I totally stand by that. I am not saying it about Lord Fink."

He said there were "several questionable donors to the Tory Party".

The row erupted when a list of political donors, including some who had given money to the Labour Party, who had bank accounts with HSBC's private Swiss banking arm was published by The Guardian and the BBC's Panorama.

The bank faces allegations it may have helped wealthy clients avoid or evade tax.

Mr Miliband used the protection of Parliamentary privilege to name Lord Fink, a philanthropist and former hedge fund boss who has donated £3m to the Conservative Party, as one of the UK citizens listed as having an account at the bank's Geneva branch.

Who is Lord Fink?

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The Manchester-born son of a grocer, Stanley Fink has been described as the "godfather" of the hedge fund industry, after overseeing the growth of the Man Group, to become the largest listed company of its type in the world.

The 57-year-old quit as the group's chief executive in 2007 to devote more time to his political and charitable interests - he has donated millions to education and health projects, including an academy school in west London and a children's hospital. He also serves on the Board of Trustees of the Oxford Centre for Hebrew and Jewish Studies.

He was appointed treasurer of the Conservative Party by David Cameron in 2009 and was made a life peer two years later. He stood down as treasurer in 2013. He has donated more than £3m - from an estimated personal fortune of £120m - to the Conservative Party and bankrolled Boris Johnson's first campaign to be London mayor.

He read law at Cambridge before training as an accountant. Married with three children, he has homes in North London, France and Spain.

He then accused David Cameron of being a "dodgy prime minister surrounded by dodgy donors".

A furious Lord Fink made a statement on the steps of Conservative HQ challenging the Labour leader to repeat the allegation outside Parliament and threatened legal action if he did so.

Party funding

But on Thursday morning, Lord Fink appeared to climb down, telling The Evening Standard: "I don't even want to sue Ed Miliband. If he simply uses the words 'Lord Fink did ordinary tax avoidance' then, no, I couldn't sue him. But if he made the statement 'dodgy' about my bank account, that was potentially libellous. That was the issue I took exception to."

He admitted taking tax avoidance measures "at the vanilla, bland, end of the spectrum", adding: "The expression tax avoidance is so wide that everyone does tax avoidance at some level."

Mr Miliband reacted to Lord Fink's comments by saying: "I think this is a defining moment in David Cameron's leadership of the Conservative Party because it is now revealed that he appointed a treasurer of the Conservative Party who says everyone engages in tax avoidance. I don't think that is the view of most people, I don't think it's the view of the country, and I think it does say something about the Conservative Party and where it has reached.

"The question today that David Cameron has to answer is does he agree with Lord Fink about this? Does he sanction his attitude or does he not?"

The Treasury Select Committee has launched an inquiry into allegations about HSBC's Swiss private bank and will take evidence from the both the bank and HMRC, which is accused of not taking firm enough action against UK citizens hiding money in Swiss accounts.

Deputy Prime Minister Nick Clegg said the row over "dodgy donors" should be the "final wake-up call" on party funding reform.