Knowing the breeding and family history of your dog, I would be interested in what his first experiences were like where he showed the chasing and spooking. I can tell you that his father had a huge impact on sheep (they felt his presence from a good distance away and believed he was going to move them) from the beginning, which led to me feeling he should be in a small area to gain some control, or rather to keep things from ending up in the next county. However, the pressure of the small pen, i.e. close pressure from me, the fence, etc. actually caused him to be more frantic and grippy (though his gripping was only heeling- no hanging or dragging). Holding your dog by the collar would certainly add more pressure for him and could lead to him feeling constantly corrected in that situation and unable to be "right." It took the increased familial knowledge of my mentor to change things for the dog and offer less pressure from fence panels, person, and even sheep to allow him to relax. When we went into a larger area (with fairly broke sheep and someone with a dog who could clean up a potential runaway) he relaxed at the decrease in pressure and the sheep followed suit. So did I! Some dogs require being close, others simply require more room to relax. Some require both at different times.
That being said, I do strongly believe in the "packed pen" exercise which includes a bucket, book and dog on a line. I have a 3/4 sister to your dog who really needed this. We spent a good deal of time (a few hours) in a pen with 5 or 6 lambs and we did not leave until she had finally fallen asleep. The pen left enough room that the dog could move freely side to side and was not quite within reaching distance of the sheep. That was it. I read my book and she fretted and the lambs moved around a bit on their side of the stall. I did not correct her verbally when she would try to make the lambs move- the length of my line kept her from physically contacting them and was all the correction she got. Once she finally relaxed enough to doze off then I woke her with petting and we stayed just a few minutes more in that relaxed state. I did not work her again that day.
I would hope to stress to you that not all gripping is out of desire to harm or naughtiness. It can certainly be a sign of stress. Please know that you can contact me (I hope you will) and I would love to discuss this in far further detail in relation to your dog's family and the history there.