"Good (natural) readers do not need to learn by decoding as they can easily recall new words by sight".
Mrz -- Except we know from brain research using MRI that good natural readers don't read words by sight.
--We know no such thing. The question of how exactly we get to the point where the letters disappear and we skim over words (fluency) is still being studied, with research on eye movement and various other factors involved uncovering more and more annually. The jury is still out. What we are slowly beginning to understand with all the research is how little we know about how children read, and indeed how adults read.
"My greatest frustration though is that children who are taught phonetically habitually sound out even the high frequency words that they should be able to read on sight eg w-a-s (which isn't decodeable anyway!)."
Mrz -- 'was' is fully decodable if you know the code.
--'Was' is an exception to the code, unless by 'code' you mean special categories with rules unto themselves consisting of one or two words. There is a point where teaching children to 'decode' words like 'was' is in fact teaching them to read the words by sight.
"Seeing that HF words make up a large proportion of the English language"
Mrz -- 'There are 300 HFW and approx 1 million words in the English language not a large proportion at all ...'
--The high frequency words make up 50%+ of all the words on any given page the average student will encounter. Learning them by sight speeds up reading astronomically and makes all sorts of texts accessible to readers at an early stage of reading, rendering the laborious progression through graded readers that is currently inflicted on children (and their parents) unnecessary. Of the million or so words in the English language, most university students will use about 17,000 as they go about their daily lives as students, which is obviously far less than the total estimated number of words in English.