Well, if he's below average in maths in Y1, there is LOADS of time to bring him up to average (which you want to happen, I assume?) - so the IEP can only be a good thing as it will help everyone who comes into contact with him - teachers, TAs, people who come into the school to read with the kids on a weekly basis, cover teachers, etc - to sing from the same hymn sheet.
I think you may be worrying that you should have picked up that there was a problem before the school did. Well, you shouldn't have. That's the teacher's job, which she has done correctly.
You think there's a negative connotation attached to an IEP. Please believe me, there isn't.
He won't feel different coz he has to work with the TA sometimes. Trust me on this.
"Isn't the classroom all about getting the children to a national average, so her saying he is below average that is comparing to peers." - She is saying that he is below the national average at the moment. I can absolutely guarantee that many of his peers will also be below the national average but she is not allowed to discuss that with you, just as she is not allowed to discuss your DS with other parents. He isn't even 6 yet. He's got 5 more years at primary school to get to the national average.
I think that's really what's bothering you - you're worried that he's not as bright as his peers. May I say for the record that being below average in maths (or literacy or whatever) is not an indicator of intelligence. There are many reasons, APART FROM A SEN, why a child might be below average - illness, absence from school, easily distracted (often due to HIGH intelligence), poor concentration, disorganised, poor eyesight/hearing (might be worth getting these checked - my DS has shocking eyesight but none of us realised until he was 6), not getting enough sleep....