I really feel for you, this sounds like a horrible situation.
My son was just the same. I felt he had never been taught how to form his letters properly and it was all really hard work for him. He would burst into tears or just refuse if asked to write. Then he felt awful about himself because other kids were writing reams.
It might be helpful to take a few steps back, go back even to handwriting books and dotting out letters for him to copy if necessary. Go for the smallest task that you think he can accomplish and then make sure he gets lots of praise for it, building his confidence. Slowly build up the writing, try to link it to something fun. Stick pictures in a book and he can write one word under each...Write a postcard to grandma where he just writes a sentence and then she phones him and is so pleased to get it.. whatever will get him happy to do it.
I would be telling the teachjer to back right off, take the pressure off, work with him. Can he do some work on computer so he can be proud of the content. With stories I would get my son to think of an idea, we would chat so he was really excited, then I would get him to dictate a bit, I would write a bit, then get him to write a bit etc. He is now - Y3 -just keeping up with the others, I wouldnt say he ever wrote for pleasure but he can do it.
I wouldnt stand for him being banned from numeracy, that is plainly ridiculous. I would see the head straight away, there is clearly a difficulty of some sort or he would be doing it.
Good luck