The workaround suggested above unfortunately did not fix the issue for my son's fire tablet. Both permissions were already ticked. I unticked them, restarted tablet and then re-ticked the permissions options but issue still persists. As Ryan mentioned, it seems the issue does not occur on older fire tablets as my other son's fire 7 has no issue logging in with his microsoft account.
@ryan ashton - thank you! Like Joe I was unaware that storage permissions needed to be updated under the child's account. Having just tried it now, issue is resolved. I have a VERY happy 7 year old son again. Thanks all.