You said he's on Stage 2, which is red band (the ORT books are colour coded in the corner so you can see what band it is). Stage 3 is yellow band, which is where most schools still following book bands would like the children to be by the end of Reception in order to put them through as expected. As I said, some schools like your child's school will prioritise their EYFS data instead and put a child on red through as it could be argued they've done everything they need to do to meet the Early Learning Goal in reading. Others choose not to though as they know they would be setting the child up for an uphill struggle to maintain that expected level by the end of year 1 unless they make accelerated progress (plus they know the child will be less likely to receive the additional support they perhaps need if they go up to Year 1 as expected).
Unfortunately the Early Learning Goals at the end of Reception are quite subjective judgements. As an experienced Reception teacher, I've sat through many a moderation meeting over the years debating with a colleague (both in my own school and externally) whether a child should be put through as expected or not in each subject, based on the evidence/knowledge we have of that child.
It would be lovely if the curriculums did marry up, but have you ever known anything in education to make sense with this government?
I'm sure your older children did do well on the old style ORT books. I have many old pupils who did too. They're considered outdated now though as they're not decodable so children need to use more than just their phonics skills to read them (stage 1/pink books containing sentences such as "Look at me on my bike"). Ofsted would definitely frown on a school still using these as it goes against current practice. The newer Floppy's Phonics ones are decodable, with Stage 1/pink books instead containing phrases such as "I am Sam. I hop hop hop". Although they still contain the character names (Biff, Chip, Kipper, Floppy, Wilf, Wilma etc) which are not all decodable at this stage. If your child's books are newer decodable ones, ar Stage 2 they will have sentences such as "Chip put the mash into a dish", as opposed to the old style Stage 2 which would have included sentences like "The children had a water fight".
I don't know why you felt a cheap dig about non-white characters was necessary?
I understand you're disappointed to hear your child is currently working below the expected standard but it's not the end of the world, they can easily catch up with you and the school working closer together. Of course there's such thing as being behind even at this age. Some year 1 children still can't read CVC words, others will be reading Roald Dahl fluently. Then there's every other stage in between. The range in ability is massive at this age. Some will be way ahead of the expected level, some bang on and others behind. It's ok. That's what teachers are there for. If they didn't identify a problem at this early stage, it will take longer for your child to get support to close the gap. It sounds like their Year 1 teacher is on the ball. That's a good thing.
Do you record all home learning in a reading diary or such like? I only ask because if you don't that could explain why they questioned how much you read at home. If parents don't engage with the reading diary I will bring it up at parents evening, asking how often they read and reminding them to fill it in. Some parents do seem offended/defensive when I question how much they read at home but if it's not recorded we're not to know. If parents do record regular home reading I thank/praise them for their efforts, regardless of how well their child is actually doing in reading because, ultimately, the daily practise at home is what will help the children to progress.