Everyone in Spain must carry government issued ID at all times, regardless of whether we are Spanish, an EU national, or a foreigner living or holidaying in the country.
The specific law is Article 4 of Organic Law 4/2000 which states that foreign nationals in Spain must carry identity documents issued by the country of citizenship.
Thus, if you live in Spain, and you don,t have Spanish government issued photo ID, you must carry at all times your own nation,s photo ID, in the case of British citizens this means our passport.
There is no obligation on the part of authorities in Spain to give you 72 hours or some other reasonable amount of time to present your documentation. Quite simply, if you do not produce an identity document on demand when asked by law enforcement officers (Policia Nacional, Guardia Civil, Policia Local) then you could be detained and fined.
Most officers of the law will let you off with a verbal warning if you don,t have your ID on you, but this is not a requirement on their part. If you cannot identify yourself, they can arrest you, until they have identified you then will set you free. Obviously it is because of terrorists, suspected criminals etc. and someone not able or willing to identify themselves could be suspicious.
With regard to European Union law, all EU citizens have the right to move freely within the EU, and without a visa for any purpose. This includes people choosing to reside in Spain. This is not a problem, however, the right of each nation to retain the ability carry out identity checks on demand is reserved to each state, so if you live in Spain, Spanish law WILL apply.
To conclude, if you are in Spain, you must carry a valid ID card or passport at all times, and however unlikely, failure to do so could see the police detain you temporarily whilst they ascertain your identity, and furthermore, it is within their rights to issue a fine. Thus it is best to have a passport even if you do not travel, if you are a non-driver, especially in these days of more vigorous checking of identity.
A notarised copy of your driving licence or passport is not acceptable as identity unfortunately. Definitely, a passport is required always for the notary, banks, town hall…. a driving licence is not accepted.