Thanks for all of these replies. Lots of things to look at.
I should have said, school are not bothered about him reading their books as long as he is still reading to me at an appropriate level. Teacher seems to trust me but hasn't really given that much guidance, although I haven't specifically asked for help. She's tried steering DS to the right section in the school library but he gravitates towards younger picture books still when left to his own devices.
Re phonics, someone upthread said they should have covered all phonics by orange level - not sure how this can be true when they are still learning phonics in yrs 2,3 etc? I looked online at the phonics screening test (we are not UK and don't have it) and the made up words were very short and DS read them easily, but does that mean they should be able to read very long, more complex words by now? We haven't come across many words in the gold school books that he can't read, but he does stumble on longer words we come across else where. He does need reminding to slow down, break it down and not guess, but he can do it with encouragement. He's got used to being able to read everything in his school reading books without having to think about it I think. For example, we read a book about the first sherpa to climb Everest, and there were lots of Tibetan names he struggled with eg Chomolungma (luckily I know pronunciation as have been there!) - that was a gold level book. Maybe a bad example as phonetically thats not really that complicated... but anyway he couldn't pronounce it correctly until I told him!
When I mentioned books not being age appropriate, I meant for example levels of sarcasm which go completely over his head, he just carries on reading and I have to stop him, explain the joke, he might not get it - basically he's not ready to read that on his own. Stories being about subjects that might interest 6.5 year old but not a young 5 year old. Flat Stanley for example had a load of jokes that he didn't really get, although he did mostly enjoy reading it. The slavery book from the gold box at school just really upset him!
He's really enjoying 13 storey tree house at the moment, that has lots of pictures and annotations, but he really would prefer I read it to him. Smaller early reader type books that have been mentioned seem more accessible to him - I think its something he's got stuck in his head, that if its colour and looks like a school reading book then its for him to read, if its black and white and thick then mummy reads it. Thats ok for now, just wondered if it was normal and whether that would correlate with gold level.
Those Walkers books look good Kanga, Are they short, read in one sitting books (DS will do up to 20 mins I reckon) or chapter books? I'll order some of the early readers too I think or tell him to look out for them in the school library. Our local library is pretty rubbish for that level - loads of books I think he'll love in a year but not a lot appropriate for now.
Those who have said their gold readers can read anything, have they carried on reading them aloud to you? I gather this is the important bit, or should I be encouraging him to read to himself? he shares a room and a bedtime with 3 yo DS2 so I can't really send him to bed to carry on reading. Sometimes he takes himself off to read on his own and he'll pick up a lift the flap usborne book like someone has mentioned. But I don't thiknk they're really right for reading aloud - I'm trying to get him to use more character voices for example and they don't really lend themselves to that. Also I worry that when he reads on his own, I'm not convinced that he would come to me and ask about a word he doesn't understand, he'd just skim over it and not get the whole meaning. Anyway currently he just enjoys reading to me, much more than reading to himself.
Anyway thanks again for all the suggestions. I'll have another good look through and do some spending. And I'll definitely speak to the teacher after the holidays.