It is in the country's best interest
A country like the UK or Australia can really only compete economically with research, development and technology industries on a world scale.
These "intelligence industries" (my expression) can only be furthered by further studies at a tertiary level. To charge people higher and higher fees for studying will only discourage people from continuing in this education, to the ultimate detriment of one's economy.
For the long term it makes economic sense to have free education. But try telling the beancounters in a government that.