I think that it is related to a fungal disease due to prolonged exposure to heavy rain. In spite of Wales being VERY wet our sheep don't get it (maybe the local breeds are resistant).
I'd certainly shear off affected areas as it predisposes to fly strike as purplequeenvt said.
Good luck (just going to 'crutch' all our sheep as we DO get fly strike).
I would try coconut oil with peppermint and eucalyptus essential oils. Coconut oil has antibacterial properties and is excellent for the skin and those two oils also have antibacterial properties as well as anti-fungal.
I'd mix maybe 1/2 cup coconut oil (melted over low heat) with 30 drops each of the essential oils. Rub some of the oil on the affected areas at least once a day.