Thank you all for your comments,
I am delighted to confirm that we read loads of books at home and my son is reading well (ish) for his age as he is the youngest in his class.
I accept mistake can happen however the teacher was truly believing that he was getting one and she was so confused. Clearly it's more of a system fault.
My concern are more for the future, I have attached an email to the school explaining my concerns in detail. This might give you a better idea ( this was requested by them) and note I have deleted name etc
(I was unable to attach the email so I copy n paste it)
"I would like to discuss some concerns I have had recently,
The main reason of my concern are finding out that the School performance is Well under average, As I thought ( school name) was an outstanding school as advise via web page. I would like to know what steps have been taken to prevent the recurrence of the schools performance?
At the start of last year we had a meeting with The previous head teacher ( all classes ) who advised that the system the school had in place was wrong and he wanted to change it! Can you please advise what system we are currently using as he is not here anymore, are we using the new system? or are we back to the old system.
Secondly I have had some concerns over the big cat books, I have only recently received a book and find out what Oxford levels and book band My son is on, I was very upset as some of the kids had books every week and had moved up in levels. However my son has miss out ? would like to know the reason for this?
I would really appreciate if you could provide more information on how I can help my child at home, we read and do phonics worksheets daily. We also have my niece who is training to be maths teacher who is kindly doing extra maths with him weekly
•Maybe the teachers can let us know the work they are working on that week in order for us to continue practicing it at home.
And finally I would like to take this opportunity to thank (teachers name) and everyone's that is helping (son's name) with his learning journey, I am well aware how hard your jobs are and that you are doing a great job. My son has made a huge improvements within the last six month therefore if we worked more close together and keep the communicating going we can help and give him the best opportunity there is available"
I promise I will not send it off if you guys still think I’m overreacting 
And once again I would like thank everyone for their comments as thinking I did overreact would/is making me feel better as I was really worried