I’m going to go against the grain here- if and where it can be afforded the childs standard of living should be maintained. That’s the point of maintenance- it’s not a race to the bottom to see how little your dh can pay so that god forbid DSS mother has a life too.
I speak as a single mum who has had this argument with my ex. The simple fact is all money that I get goes into one pot. That pot pays the rent, the bills, travel, school activities, clubs, Christmas and birthdays. In the same way you and your dh share your finances, his ex is sharing her finances with his son.
It’s all coming out of the same pot. Who are you to say that she hadn’t been saving for a holiday over time, had the money but used part of it to pay for a bill/presents and the money provided on that date didn’t make that money back up?
Borrow from one hand to pay the other?
As for the ‘pay in kind’ stuff- that’s controlling and ridiculous. If she spends what you two as a unit approve of, that’s okay. She has to play her parental choices before you both before getting things for her child? If you approve and she behaves she gets to have things for her son? How humiliating.
If you don’t trust her around her son then do something about it, but don’t dress it up as anything than what it comes across as.
You’re pissed off with her. You’ve never said that the child has gone without, that the child is upset. You’re the person who is pissed off in this scenario. I get it (believe it or not, I really do) but if you consider your joint money to be going to support something you don’t believe in, then maybe consider having your money for bills etc in one account, an account of your own, and a joint savings account. Leave him take care of this one.