For intra-schengen travel you are supposed to have a national identity card or passport, not just a photo ID. I don't think Brits have those cards yet so they still need passports.
The British were opposed to National ID cards, so they were never introduced. They tried in 2006, but it ended up being repealed on the grounds that it was an invasion of civil liberties and privacy. A rare moment of clarity for the UK govt.
