The reason for the law is to encourage all dog owners to take responsibility for keeping their pet. When it reported the news in 2013, the BBC said that the 118,000 dogs go stray every year in the UK. It quoted Environment Secretary Owen Paterson, who said, "It's ludicrous that in a nation of dog-lovers, thousands of dogs are roaming the streets or stuck in kennels because the owner cannot be tracked down."
The Pet Owners blog says in an article on compulsory microchipping, “Under the law you are obliged to keep your details up to date on the database. Police and local authority employees will be issued with microchip reader scanners so that instant enforcement of the law can be carried out. A time window will be allowed for the owner to get the chipping done if their pet is caught without a chip. After which a £500 fine for failing to comply will be issued. Full details of the change to the law will emerge over the next few months."
The Dogs Trust is offering free microchipping sessions in various parts of the UK. You can find out more information here.