The issue is more what happens when you buy a new phone or lose the old one. Then you need the full iCloud details and password. More than one person I know has got to that state and have no idea what it was. They don't even know what their own email address is to start with.
Incidentally I know how it works. I work next to the sector. The issue is that these are all legitimate questions that we have to work with daily and the abstract "we will arrest you until you ID yourself" does not work when you book a hotel...
Verifying your identity without a global ID is done today through a combination of primary and secondary identifiers. For example a passport and bank statement. Or a driver's license and recent tenancy agreement. So if you don't want to verify yourself using the above combination then companies and the government will simply not choose to interact with you.
And not sure if you've used a phone before. But you don't need the full iCloud password to unlock your phone and access a digital ID. You just need FaceID, TouchID or a 4/6-digit PIN.