Can I move to Lara's school?!
But seriously, in my dd1's reception class the children were never not once, ever heard to read by the teacher. It was all done by classroom assistants who lacked the knowledge and the oomph to assess the child's level and give appropriate books. This business of handing out sheets is a common one too, tho' Reception seems a bit early for it -- it's a lazy way of appearing to give extra work to get troublesome parents off the teacher's back, IMO.
As a veteran of these sorts of encounters I would do the following: make an appointment to see the child's teacher. Ask for her assessment of your child's reading ability, ideally taking in something that you've been reading with her at home to show what you think she can do, and ask if there is any reason why your child can't be put up a level or two.
If you get fobbed off or they say all the right things but nothing changes, then you have two choices. You can either up the ante by going to see the head and making a big noisy fuss about it, in the knowledge that it may not achieve anything apart from getting you marked out as a pushy mum (I'm not saying you are, just that this may be the school's perception!).
Alternatively, you can regard the school as a necessary affliction where your dd gets to improve her social skills while you get on with the serious business of teaching her to read (and write, and add up...) at home.
I know this sounds very cynical, but in many state schools, depending on the makeup of the class and the skill/dedication of the teacher, the choice really is that stark.