This must be hard for you and DH but DH needs to realise that all children learn at different rates and this in no way means that your child is going to be dumb because he stayed down which is probably what he is thinking. As you said your son is doing well with numeracy but just needs to really understand the basic building blocks with literacy which will set him straight for life. If he keeps getting put up each year without understanding those concepts he will lose all confidence and each year will be harder and harder for him...does DH really want that for his son.
Some schools don't keep children down until grade 1 and maybe this could be an option for you with the extra tutoring that Ambah suggested. Does your school have a Reading Recovery program that is normally offered to year 1 & 2 students? Sometimes in the middle of grade 1 and with a little assistance from programs like this, students can suddenly 'get it' and start improving. It all depends on what your school has to offer and any other options they have for you.
Keep in mind that kids are very flexiable and having his friends move up without him is far less dramatic than moving to a whole new school completely as many children do each year. They make new friends and move on...it is normally the adults that have more of a problem with it!
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