Hi Peter
It doesn't sound right, I agree. Have you thought of calling IPSEA, who have helplines advising on special education issues? More info at
http://www.ipsea.org.uk/.
Good luck, and whatever you do if it feels wrong to you then fight for it! One thing we have learnt in our own battles is that the LEA will often go for the easiest option for them rather than the best option for your child unless you fight.
Another source of help we have found useful is our local MP - she was positively shocked about some of the things our education authority have got up to, and has wrote a few stinking letters on our behalf plus even discussed issues in parliament! I guess this really depends on your MP though.
Regards
John