Upsadaisy, I understand your concerns but as a teacher I'd like to reassure you a bit.
Firstly, I would hazard a guess that the class won't be that big all of the time. It's quite likely that the children will be streamed into smaller groups for Literacy and Numeracy, based on ability and age. I've taught mixed age classes and it doesn't affect the kids that much - the parents are always far more concerned!! They won't just be taught from the Y3 curriculum either. Some lessons will be Y3 stuff and some Y2 stuff, but good teachers know how to adapt it to be appropriate for all the children.
WRT Sats: he would be doing them anyway this year so I would doubt it will make much difference whether he is in a mixed Y2/3 or pure Y2. The Y3's will most likely be doing optional SATs at the same time and will be able to reassure your ds that they aren't that bad anyway. (Which they aren't in Y2. The writing tests, if not all the tests - are conducted in small groups with a teacher - it's not like sitting a GCSE or even a Y6 Sat.)
It does sound a little underhand in the way the head teacher has announced the news but it's not unusual. My last head did the same in exactly the same situation. It's not right, but there's also nothing anyone can do about it - it's all to do with funding unfortunately. I'd also second what bilbo1 said about the thought and planning that goes into placing the kids. It's never a case of splitting a register in half and that's it. Teachers also think about ability, personality and friendship groups when deciding who goes where.
Try not to worry about what's happening, give your ds time to settle into a new school year (i.e, up until half term), find out how the class set up is actually going to work wrt age/abilty/subject and if you really feel it's not working for him, then approach the head. Believe me, he probably will be as unhappy about the situation as you are but he is tied by budget at the end of the day. Despite everything the govenment says about school funding, the reality for many schools is that they just can not afford to have the class sizes they would like.
HTH a little bit, enjoy the last day of the holiday.