A group of the City’s top financiers has come together to form a fund that plans to cut crime.

It includes Sigrid Rausing, the Tetra Pak heiress, Stanley Fink, the hedge fund veteran, and Sir Ronald Cohen, one of the Labour party’s biggest donors. The aim is in effect to privatise the rehabilitation of offenders.

The scheme, which has government support, would pay investors for cutting prisoners’ reoffending rates.

Money would be pooled in an investment fund, called a social impact bond, which would provide the finance for vocational training courses and counselling services for offenders, and pay for management expertise.

The initial investors would be charities involved in the rehabilitation of former prisoners. If reoffending rates were cut, the fund would be paid a portion of the money saved by the government in prison places, police time and court costs.

Investors would make a profit, but none of the high-profile backers of Social Finance, the ethical investment bank running the scheme, would stand to gain personally.

A £12m pilot project involving prisons in the West Midlands and Peterborough has been agreed by Jack Straw, the justice secretary, who sees it as “a very significant, radical and innovative development which could have a lasting impact on the criminal justice system”.

A Whitehall source close to the negotiations between Straw and the financiers said it could form a key part of Labour’s election manifesto.

The scheme would focus on the 40,000 criminals who serve sentences of less than 12 months, the majority of whom go on to commit more crime.The average number of offences committed by a single criminal is 140 per year, according to a Home Office survey.

Civitas, the think tank, estimates the cost to society of one active criminal committing 140 crimes is £280,000 a year, while the cost of reprocessing him or her through the criminal justice system and back into prison is put at £65,000.

The aim is not to revolutionise the rehabilitation of offenders but to manage it more effectively by putting it in the hands of people who are financially motivated to make sure criminals do not go back to prison.

David Hutchison, chief executive of Social Finance, and a former head of UK investment banking at Dresdner Kleinwort, the investment bank, believes current schemes are failing because they are not focused on the right targets.

“If your job is simply to be measured by the number of people you put through a training course, then you will organise yourself in a particular way to get bums on seats, to tick the box for the number of people who turned up, and get paid accordingly,” he said.

Money has also been given by the Sainsbury family and the Rockefeller Foundation.

The financial model is loosely based on a project set up in Peru several years ago to fund sewage treatment and sanitation projects, where the financial backers got paid only once health benefits were observed.

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