You are not paranoid, your mother most likely hit your son. Your evidence may be circumstantial but you know this woman and are best placed to judge. Your husband is categorically wrong when he says you would have been removed if your parents were abusive; sadly many children do not receive the help they need. The fact that your parents were more strict with you than your siblings is also not an indicator that you were just a "horrible" child. In fact it is a fairly common dynamic in abusive households.
But clearly this is an emotive issue for you, and that's understandable. Poor parenting doesn't always tip the scales to abuse. So let's stick to the facts:
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your mother's parenting choices have had a long term negative effect on you.
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your son was extremely distressed after spending time in her care.
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your mother has threatened to take your child from you.
Were money not an issue, these would ALL be good reasons to reduce contact. You don't need to know conclusively whether she slapped him.
So, next issue is money for childcare. Either you cannot afford it as a family, or you, personally, can't afford it and your husband won't help.
If the latter, then he's being an asshole and gaslighting you about your experience of your childhood and would prefer to send his son to a place that clearly scared him than pay. Reducing it to you not getting on with your mum trivialises the matter. He may not understand why this is a major issue for you but he doesn't have to. If he loves you, he should support you on this.
If it's an issue of being unable, as a family, to afford alternate care, then there are some practical things you can do. Firstly, you may be eligible for Tax Credits to help with childcare even if you aren't eligible for general financial assistance as the thresholds are higher. Secondly you can reduce your debt repayments temporarily due to your financial circumstances. This is usually possible as debtors often try to avoid court as judges frequently order even lower repayments. Citizens Advice can help you with both of these issues.
Bottom line - you are distressed and getting no support. Please trust yourself and don't be bullied into ignoring your valid concerns.