Theres a common fault on most VW group stuff of this era, my 99 Octavia suffered from it too....
Round the ignition barrel is a reader module thats connected with two twisted pair signal wires up to to the instrument panel where the signal from the key is decoded and the immobiliser switched off. These wires degrade, it usually happens after the adjustable steering column has been moved for the first time in ages (the failing wires finally break with the movement).
Battery off. Remove the steering column plastic shouds and you will see the reader round the ignition keys, also the two twisted pair cables - from memory they are green and white but it will be very obvious as they are the only wires that go to the reader.
Remove the instrument cluster - and then trace the wire from the reader to the plug at the back of the instrument cluster. You will have to cut away a little insulation from the main loom to expose it all but its easy enough. Cut the wires ONE AT A TIME as close to the instrument cluster and the reader plugs as possibe and solder in some fresh cable - make a decent job of the soldering, its important. Insulate all the new cables and plug the instrument cluster back in, then refit the trim, battery back on and test. My Octavia was done like this over 2 years ago and has been no trouble since. Dont be upset if you dont see any visible deterioration in the cables when you expose them, mine looked perfect visually but renewing them cured it....
Good luck
Matt.
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