First the Peter and Jane books are non-phomic and may include words that can not be sounded out - not great if the boy is working through phonics (as recoemmended in all state schools). Many are not particularly familiar words either.
You are coming across as very competitive. Lovely that your 2y is taking an interest in words and reading. But remember that not all children are the same and some are different strengths to thers, and not all are related to academic subject areas.
There is probably nothing wrong at all with this little boys' reading, just he may be working a bit slower right now. It will kick in at some point - there is no rush. Leave him alone.
How do you know how well he is really doing in school? How do you know he is not reaching all the targets that have set for him as an individual child? Maybe he isn't top of class for reading, but how about hsi maths, schiece, IT, writing, comprehnsion, PE, etc?
He could also have just not been wanting to read, rather than unable. All childre go through those phases - even fab readers!
It is for his mum to worry, not you, about what his school is doing.