This is a cute idea but impractical unless there’s substantial changes in the way that payment processing works. Declined transactions are not good for merchants, transaction declines are one of many heuristics used by payment processors to determine the quality of a merchant and high decline rates are a bad signal that can, in some cases, lead to termination of services. Although I don’t think it’s common in the UK, there are payment processors that charge fees on decline too. From a front of house perspective declined transactions are a pain at the point of sale, there’s a cost to a business in having a customer get to the point of purchase and then be unable to complete.
Ultimately, budgeting based on card declines is a brute force method that feels quite icky, especially in terms of what Monzo has said about their budgeting tools. Monzo is providing the tools to allow people to budget so they’re in control of their money: customers know how much they’re spending and what they can spend, allowing a customer to block their own transactions because they’ve failed so severely at managing their money – that code must stop them from spending it – doesn’t fit into that vision.
If you have compulsive spending habits that need intervention then you can use pots to ring fence your money from unplanned day to day spending, and if your compulsion is so strong that pots aren’t viable because you would move money out to spend on fast food, then middleware would just be disabled.