I'm currently in the midst of a real mess with Grace, one of my 2yr old fillies. She has Sweet Itch and this year it's the worst I've ever seen. I feel so sorry for her. She's just one big sore. She's rubbed out the top half of her tail and all of her mane and just scratches all the time. I've given her steroid shots and prednisone pills to no avail. It looks like she's destined to wear a midge-proof sheet for the rest of her life. If you want to read about what Sweet Itch is, this site is the best I've found...
http://www.sweet-itch.co.uk/symptoms.html
My pony's tail is just growing back now.... I don't know if she had ~that~, but she does rub her tail out every summer, and just seems to itch too much all over. All gone now, but she is a scratchy pony in July.
Well, I look at it this way, the perfect horse doesn't exist and we all have to put up with something. At least he's gentle, doesn't buck, kick, bite or run off, so things could be worse.
I had a horse with sweet itch and tried everything. My vet suggested a fly spray called FlyPel and I kid you not, it worked. He never had another problem but he wasn't as serious with it as your horse sounds. Chester used to rub his shoulders and neck raw every summer. He's dead now, he got really old, stopped eating and looked like death warmed over so I had him euthanized and buried.
Tuffy is also on steroids, Dexamethasone, and it does stop his itching. It's not sweet itch, though.