Tom Watson has praised privacy campaigner Max Mosley, despite the revelation of his racist 1960s leaflet, and ducked calls to hand back his £500,000 donation.

Labour’s deputy leader said he would have refused the money if he had believed the tycoon and privacy campaigner still “held those views contained in that leaflet of 57 years ago”.

But, speaking in the Commons, he said Mr Mosley deserved recognition for his staunch support for the victims of phone hacking.

“If I thought, for one moment [Mosley] held those views contained in that leaflet of 57 years ago, I would not have given him the time of day,” Mr Watson told MPs.

“He is a man, though, who in the face of great family tragedy and overwhelming media intimidation, chose to use his limited resources to support the weak against the strong.”

Mr Watson is under pressure after Mr Mosley’s role in a 1961 by-election campaign for the far-right Union Movement, run by his father Sir Oswald Mosley.

A leaflet, revealed by the Daily Mail, claimed that “coloured immigration threatens your children’s health”, scaring voters with the spread of diseases including TB, VD and even leprosy.

The paper has now reported that the motor racing boss also visited the infamous Dachau concentration camp with his father, in 1962.

In a television interview this week, Mr Mosley agreed the leaflet he sponsored “probably is racist”, but insisted he had “no reason to apologise to anyone”.

Scotland Yard is assessing a dossier to establish if he committed perjury, during a High Court case, when he denied he knew about the leaflet, calling it “absolute nonsense”.

James Cleverly, a Conservative deputy chairman, has called for Mr Watson to return the £500,000, to remove any suspicion of inappropriate influence.

In the Commons, Labour’s deputy leader said he wanted to “take the Mosley issue head on” – but did not mention the issue of repayment.

The reference to a “family tragedy” follows the death of the campaigner’s son, Alexander, in a suspected drugs overdose in 2009.

On Wednesday, Labour said neither Mr Watson nor the party as a whole would be accepting any further donations from Mr Mosley.

A spokesman for Jeremy Corbyn described the comments in the 1961 leaflet as “utterly repugnant” – but said people do “change their views” and that the pamphlet was printed a “long time ago”.

“It’s also the case that the Labour Party has moved away from large-scale donations from wealthy individuals,” the spokesman said.

“We are heavily funded by our members, our affiliates and very large numbers of small donations.”