Ask your vet to do some allergy-testing. Could be he's allergic to something he's eating, or to some plant in the garden. Also ask the vet to do a more thorough search of the itchy area - it could be something like a grass seed embedded under the skin. You KNOW there's something wrong, so it's worth a more thorough investigation. It might also be worth getting a second vet's opinion.

After checking with your vet, you could try this:
Use a mixture of Liquorice Root, Dandelion Root, and Cat's Claw in equal drops of each tincture for two weeks.

You could also try using Aloe Vera gel on the area.

If your dog wears a flea collar, toss it out!

It's a rare dog that doesn't have fleas. Many dogs are allergic to flea bites - it's a common cause of itching. Try giving your dog some brewer's yeast in his food. 1 tablespoon per day, depending on the size of the dog (check with the vet).

Remember, as with humans, dogs can be allergic to ANYTHING, so your vet might actually ask you to stop administering assorted herbs for a while, then to re-introduce one at a time to eliminate it as a culprit. Ditto with his food.

Try using a soap with neem oil in it. Try to find one with peppermint too to cool and soothe. This is to only temp. relieve itching.

Also, your dog might have "hot spots". Applying sufadine to the spots helps.