That sounds a bit odd, but the best thing would be to talk with the teacher and ask her in the nicest way that you only want to understand how they are allocating the books to your DD and how does this relate to the phonics she is currently doing.The teacher then can explain what her reasons are, what her plan for your DD is, etc.
My son in Y1 is also doing phonics with Y2, but his reading band is higher (lime band 11?). When he was in reception, once reading clicked for him he was always ahead of the level of books the school sent home, in terms of being able to read/decode and understanding. At one point I discovered he could read a long story of like 15 pages all by himself of a non-scheme book, but his tone/expression was kind of flat. I commented this to his reception teacher, and she agreed with me. She knew he could read books at a higher level, but then explained to me that she was choosing the school books with a level slightly easier to practise expression, following punctuation, and that she would try to increase the challenge but at the same time she wanted to be careful not to choose books too difficult that would dent his confidence.
I was happy with the explanation, and let the teacher go on with her plans. He read more advanced books for fun at home, and we worked in the expression.
Only recently in Y1 the school books he is getting match the kind of books he is reading at home. And I do know from speaking with the teacher, that while she knows he can read advanced stuff, the problem with early readers is that you need to be careful with the kind of books/topics that you choose, so that they are interesting but not contain topics beyond their age.
So, all in all, talk with the teacher when you have a chance, and keep reading to her at home. Find books that are interesting to her, at the level you think she is, and eventually she’ll make the leap from only wanting to read scheme books to reading other interesting books. If she is somehow reluctant but you know the book is at a level right for her, you could try reading alternate pages, until she is confident enough and realises she can do it all by herself.