Jon says "The decsion seems quite reasonable for a C of E school to take. The song is at odds with Christian teaching."

And that's the truth. It shows the essential problem with having an Established religion as in all of the UK. It's law. It's the Official Religion. Schools are not expected to be "fair" in this (although as stated above, they've greatly liberalized over the past few decades), they are expected to be parochial schools that happen to be supported by the state. I gather that Scotland has much eased up on this in practice.

We never much held with parochial schools but on entering our child in primary school in Scotland in 1975, we found she would be forced to recite Christian prayer and sing Christian songs and take Christian holidays and would not be excused for Jewish High Holy Days. We would up placing her in a Jewish school. Thue, the state schools (as opposed to the church ones) didn't spend much time teaching religion but they didn't have to - a C of S "atmosphere" was rampant.

I believe that even the most benign Established Religion (and I know that it is pretty benign in the UK)) is patently unfair. What non-subscribing Brit or non-established-but-observant Brit (eg, Free Kirk or Baptist) could be comfortable with suppurting (or not) his own church and also paying for C of E/S through his/her taxes?