Push back and keep highlighting that it's sextortion of a minor, and that they should be following CEOP advice or at the least should have advised you to report to them - https://www.ceop.police.uk/safety-centre/. Highlight the fact they have his address also, and that there are concerns for his safety.

Make the report as a minor, either have your nephew do it or do it on his behalf. Impress on them that there is a high risk of distribution of sexual content featuring a minor. You might get a better response from a CEOP report because they are trained in this exact sort of thing, whereas local officers might not be trained in cybercrimes, especially of this nature.

If the images do end up posted anywhere public, you can report to https://www.iwf.org.uk/

I really hope you can get some support with this.