Digital ID promise for UK weighed against risks to inclusion & innovation

The UK Government's announcement of a new digital ID scheme aimed at tackling illegal working and reducing fraud has prompted industry experts to outline both opportunities and pitfalls in the approach.

Highlighting potential advantages, the Tony Blair Institute for Global Change outlined estimates that the scheme could cut benefit fraud by GBP £1.25 billion a year and reduce identity-related fraud in the financial sector by GBP £350 million annually, due to the additional verification checks possible with digital identification.

Perspective on limitations

Jonathan Frost, Director of Global Advisory for EMEA at BioCatch and a former lead on the UK's National Fraud and Cybercrime Reporting system, cautioned that expectations should remain realistic regarding the proposed digital ID's ability to eliminate illegal work or fraud.

"Digital ID is not a silver bullet for illegal work, informal economies, or fraud. Just look at EU countries like France, Germany, and Belgium, which already have national ID schemes, yet still face significant challenges in these areas. Its more immediate value may lie in reducing friction in financial services and state entitlements rather than directly cutting fraud. The real potential could come from linking state systems, like DWP and HMRC, with those operated by banks. Connecting online activity to a digital ID could become a powerful counter-fraud tool, but its full impact, both positive and negative, needs careful consideration to ensure successful implementation."

Frost's experience across public and private sectors in combating fraud and cybercrime underscores the complexity of the issues digital ID schemes are designed to address. He emphasised that while national digital identity programmes might streamline some processes, the prevalence of informal work and ongoing fraud demonstrates that such schemes alone are unlikely to be a comprehensive solution.

Industry innovation concerns

Janine Hirt, CEO of Innovate Finance and RegTech UK, issued a statement welcoming government support for digital identity, but raised concerns over the framework and implementation approach.

Hirt noted that reusable digital identity and verification are integral to enabling both innovation in fintech and improved financial inclusion. She cautioned, however, that mandating a government-issued digital ID could shift debates away from utility and innovation towards issues of civil liberty and state power. There are fears that a monopoly or a costly state solution could stifle the emerging industry and limit consumer choice.

"Government support for digital identity is welcome but the initial announcement raises concerns about innovation that need to be addressed swiftly.Reusable digital identity and verification is a critical component of the tech stack that forms the building blocks for FinTech innovation in the UK - helping to reduce fraud and enable financial inclusion."

"The decision to mandate Government ID however risks the discussion being focused on civil liberty and sovereignty - rather than the utility and innovation this technology can bring to people across the UK. It is also vital that the roll-out of Digital ID supports a competitive market, underpinned by a trust framework, not via a monopoly or costly State solution. Equally, mandating a Government issued ID could crowd out companies who have been developing innovative solutions which are accredited against the Government's own legal framework."

"Design and delivery must enable multiple service providers, unlocking innovation and supporting the growth of our nascent UK digital verification innovators. The mandatory Government digital identity announced today could provide a useful identity attribute which can then be used by verification providers to provide a range of services. If, however, it becomes the de facto identity scheme or is delivered in a way that hands market power to a few large corporates, it will kill the UK's innovation opportunity and undermine trust."

"Swift clarification is needed from the Government on design and delivery principles to prevent his announcement from freezing investment in our vibrant scale up tech firms in this sector," said Hirt.

The statement underscores industry calls for clear guidance and an open marketplace to avoid crowding out private sector innovation that has developed under the government's own frameworks.

Concerns over digital exclusion

Tech entrepreneur Irra Ariella Khi, CEO of Zamna AI, drew on her experience with digital identity rollouts in the travel sector to raise warnings about digital gatekeeping and exclusionary risks.

"Wallets exclude. They demand smartphones, digital literacy, trust in surveillance, and a tolerance for friction: things many people don't have or won't give. No government should ever say: 'To work, to access services, to participate in society, you must own a smartphone or computer.' That's not inclusion. That's digital gatekeeping."

Khi referenced the low uptake of digital wallets during the COVID-19 pandemic, despite urgent international travel requirements, with fewer than 2% of passengers using them and the majority failing to complete onboarding. She cautioned against assuming digital ID rollouts will automatically achieve high adoption rates.

Statistics from the Digital Poverty Alliance and Age UK highlight that around 1.7 million UK households are offline, an estimated two million people over the age of 74 do not use the internet, and nearly 4.5 million people - 8 % of those aged 16 or over - do not own a smartphone. Among people aged 75 and older, the proportion without a smartphone rises to 28%.

Khi also noted operational challenges encountered during pandemic travel, when technical failures required costly and manpower-intensive analogue solutions. Her commentary highlighted the need for a robust human fallback and the risks associated with over-reliance on digital-only mechanisms.

The responses from sector leaders indicate a broad consensus that, while digital ID holds promise for efficiency and counter-fraud, its success will depend on inclusive design, consumer choice, and effective collaboration across government and private sector stakeholders. All parties emphasise the importance of striking a balance between security, innovation, and accessibility as the UK seeks to overhaul its approach to digital identity.