Party favour takes the biscuit (7)
I believe the answer is:
cracker
I believe this is a double definition.
'party favour' is the first definition.
(I know that cracker is a type of party favour)
'the biscuit' is the second definition.
(I've seen this before)
'takes' acts as a link.
(Other definitions for cracker that I've seen before include "Christmas firework" , "Knockout biscuit?" , "that should be on the table tomorrow" , "it may be specially for Christmas" , "An outstanding example of its kind!" .)