School overreacted ?

My 6yo struggles to even use He and She correctly. I doubt a child who is barely older understands racism. Kids just say poo a lot.

"Full weight of school racism
Policy"? What does that mean?

Were they daring each other to call the older kids random rude words or were they daring each other to call kids with brown skin a poo? You will never know the truth of it (7yos not being the most reliable witnesses), neither will the school so they were correct in dealing with it in the way they did. Might be a good time for some open conversations with your son.

Why did your child not know about racism? At that age they are old enough to understand the basics and why they need to be extra careful about their language. As they and you have found, the issue is how others perceive their words, not how they were meant.

They are a good age to learn that lesson. Far better to learn it now than trying to teach them when they are teenagers.

We are what might be described as a non-diverse family in a pretty non-diverse area so we have made an extra effort to for example, read books about Rosa Parks or talk about Nelson Mandela from pre-school/reception age.

Sadly children do use the term poo as a racist insult, my boys were a similar age when another child told them their Dad was the same colour as poo. My boys are olive skinned while their Dad is Asian. Wether your son was using it as a racist term or not, you need to be asking why they thought it ok or funny to call other children nasty names. I am a teacher in a primary school and would find that behaviour very worrying and certainly not acceptable or standard for a 6 year old.

Never heard poo being a racist comment. Just a "rude" word little children like to use.

That does sound odd. I’ve heard many children call each other “poo” without it having a racist context. Perhaps other children at the school have used it in that way before which is why they’ve jumped to that conclusion. I feel sorry for the child who felt they were being targeted for their race but I also feel sorry for your child who must be somewhat bewildered! They both need a conversation with a sensible adult before drawing a line under it.

What is the 'full weight of racism policy'

But they don't know he has no idea what racism is. And these things have to be nipped in the bud.