Touch ID not working on Magic keyboard with MacBook Air

I have an Apple Magic Keyboard which I had been using with my old work laptop (Macbook Pro). As I no longer use that laptop, I have connected the keyboard to my personal Macbook Air (2020) - the only issue is that it won't allow me to use the Touch-ID on the Magic Keyboard to unlock me laptop. How can I fix this so that I can use the Touch-ID, as that is its main purpose?

[Re-Titled by Moderator]