The system was substantially overhauled with the great expansion in Higher Education places in the 1980s. The main driver of this expansion was demand, because Britons were less sure of collective action to secure incomes, they got correspondingly more interested in individual solutions, like pushing their children to get degrees. With a sharp intuition, the Conservative government of the time realised that this greater demand for university education was worth yielding too (since it was in keeping with their own individualistic ideology). At the same time they understood that more university places could be created while pushing the cost onto the students (and their parents), because they were holding them to ransom by their fears for losing out in the jobs race.
What that looked like was the abolition of the maintenance grant, moderated with the introduction with a government-backed student loan scheme, and then later a similar introduction of fees (again backed by loans). These loans are recovered through the income tax.
The goal of protecting one’s future by getting a degree was in the end self-defeating, since the degree worked as a credential that gave you access to relative advantage in the professions, but with the increase in the number of degrees, their relative value decreased. Many professional or administrative jobs now demand Masters degrees.
A cynic pointed out to me that the government’s recent introduction of full-cost fees (again backed by government supported loans) was less a tax on students and more the creation of a guaranteed tranche of debt for the banks to distribute, so easing the ‘credit crunch’.
Overall, though, I think the point is right. Before the introduction of fees, the British University system was on the whole a subsidy to a narrowly-drawn group of privileged middle classes.