They only catered for a much smaller group basically the elites and a few lucky Grammar school kids.

There were a lot fewer university students back when you could attend a polytechnical institute and make a living wage in a factory. With globalization and deindustrialization, Britain is now a "knowledge economy" so you have hundreds of thousands more in universities.

They were funded by the state. Funding which has been systematically cut back over the past 2 decades.

State funding.

Funding was shifted to fees. Although considering how much of student loans is not expected to be repaid it's arguable that a lot is still state funded...