The story originates from an American rightwing news site
http://www.breitbart.com/london/
It is extremely badly written report between the Express and Brietbart. Who exactly said the flag was nasty? Or is this something that the UKIP lady alledges was said, but she is not naming which Councillor/Councillors uttered it?
As you do not appear to be posing a question, I will answer the general point on which the UKIP lady appears to be in error...
School should be about learning knowledge which will be useful to you in life or in your future career. School should not be about promoting any religion. It should not be about promoting nationalism. It should not even be about promoting Britain. If there are any particular traits that parents want to instill in their children other than what is on the cirriculum, then they should do that at home in their own time. It is not up to the school to make the children follow Allah, or to make the children patriotic.