There’s nothing really “wrong” about any of these models. It’s just a matter of trade-offs, one of them is powerfulness vs ease-of-use.
We know the current categories are not perfect (they can’t be, the same way that “genre” in your Netflix collection sometimes doesn’t make sense). However, so far every time that we’ve considered creating that extra flexibility (either via subcategories or full custom categories) we’ve struggled to accept the potential damage to the ease of use. We came up with the tags as a way to try to cover the best of both worlds, like some sort of “power user” mode. But we know that still hasn’t solved the needs of many people.
So it’s difficult, even though we think the categories are probably “fine” for now that doesn’t mean we’ll keep them like this forever. One example is the upcoming Charity category that it’s very likely to be done as a Monzo Time project very 
Bear in mind that Monzo is now way more complex than ever before and we’ve also learnt more about how people use it (thanks to your feedback!) so categories and budgeting is something that we’ll be revisiting (as it’s everything else) and maybe at that time we find a better solution or we’re happy to accept a slightly harder to use app in exchange of that extra power. What I know for sure is that we’ll make better and better as we progress towards our mission of “making money work for everyone”. We need to make it work for all of you, but it might take us a bit more of time 