Umm, no lads, sorry, but you've got taken in here by some urban myths. That little kids might think that shag bands mean what you say they mean is one thing. But no, it isn't true that in playgrounds around the country kiddies are having full on sex as a result.
As for rainbow parties, they don't even pass the laugh test:
But by far the most important problem with this story is that it entirely misses the fact that oral sex is treated differently in the UK from the way it is in the US. This was very well explained by Christopher Hitchens in Vanity Fair. In the US, as we all found out after Monica and Clinton, oral sex is regarded as something less than sex. In hte UK it is rather a very special treat that gets offered a long way into a relationship, not something that omes as a precursor to one.
No, this story is made up of less than whole cloth. It sounds like these stories of shag bands and rainbow parties are urban myths, continuations of that ever popular (it's been around at least since Thucydides was a lad) insistence that society is going to the dogs and that it's the children that are worst.