Rod1 is spot on. Fear of prosecution for an inadvertent infringement (ie virtually all infringements) is a major deterrent to transponder use and is not helped by the example quoted by Rod or by all the publicity given for NATS controllers to "report" every single wing tip incursion.
There is of course also the die hard view of some old fashioned Englishmen that personal privacy rights mean that aircraft should be "seen and not watched" by a surveillance society.