Surely this must be something decided by the indivdual schools, and not at a government level? The schools I'm involved with all have their own versions of sports day, including competetive sports and fun activities. I'm inclined to think the idea that sports day has been eradicated at any kind of national level has been wildly overstated - although obviously some schools would rather raun them differently.
See what you mean - makes for a less interesting sports day, however I think the challenge is to accommodate all the kids at the school. There is a significant number of Special Educational Needs children at my sons (x2) school. It is important that they are acknowledged equally and integrated fully and properly - and perhaps this is where the compromise lies. Competition is a good thing - but you'll probably find that the kids have as much fun working as teams and enjoying the buzz of the change of scenery and the day out than just the simple immodesty of winning.