None of the suspects in two failed council housing projects that saw £8m of taxpayers’ cash disappear will face criminal prosecution, it has been revealed.

Politicians are demanding further investigation into the alleged frauds – which represent two of the biggest in the council’s history.

Some £5m of taxpayers’ cash was frittered away on a combined heat and power (CHP) project in the Roupell Park estate in Brixton Hill and a further £3m was squandered after it was paid to a heating company for radiators that were never installed. Work on the CHP system, devised to improve heating and power provision to 569 estate homes, started in 2004.

In a report for the council’s corporate committee meeting yesterday, it also stated that police were not pursuing criminal charges against six council staff suspected of committing fraud whilst working on the Roupell Park project. The report stated the criminal case against the council employees, who were accused of using council money to buy kitchen and bathroom units, could "never be proved or disproved".

Ahead of the meeting, Liberal Democrat councillor Peter Truesdale, former joint chairman of housing at Lambeth Council, said the report had left him "speechless".

He said investigation was needed to see whether criminal charges could still be brought and added: "The report is deeply flawed. The whole thing around the extra payments has not been tested out. It is not so much a cover-up but a lack of willingness."

In a separate case, Lambeth’s housing contractor Alex Watson-Jones paid £2.8m to electrical services contractor House Surgeons for radiators that were never installed at several housing estates across Lambeth.

Watson Jones was arrested in February 2006. He was released without charge but the fiasco led to senior figures in the council’s administration stepping down.

Lambeth Council was awarded £2.6m in damages by the High Court as part of a civil action, but the Fraud Prosecution Service (FPS) recently ruled there was not enough evidence to bring the case to trial.

Last week, Lambeth Council leader, Councillor Steve Reed, wrote to Justice Secretary Charles Clarke urging him to rethink the decision.

Coun Reed said the handling of the case by the FPS was "close to incompetent" and said its investigations were "lacking in urgency".