This is a major scare for the hot air balloon community. It is both technically impossible (Mode S tiny transponders are not in existence yet as far as my research finds) and not wanted by the majority of ATCOs (from what we hear in pub chat), but it seems to be on the CAA "to do list".
Since most balloons that do fly in controlled airspace have specific access agreements with their regional airports, then the sledgehammer approach by the authorities seems entirely out of proportion.