I can't defend people not doing their job properly, but I do spend a lot of my day advising instutitions and students on fee status for individual applicants.
In my experience, wrong assessments are normally based on ignorance or misunderstanding of the rules, although perhaps underpinned sometimes by an individual employee's opinion on who "should" be entitled to funding. I think it is very unlikely that a university has a deliberate policy of wrongly assessing students and hoping they don't notice. Because they will notice eventually, and will be due a huge refund.
I guess the other side of the coin is that institutions are constantly dealing with students who think they are "home" when they are not, or who think should be made "home" outside the rules when they don't actually come into any of the "home" fee categories.
But I agree, it is a disgrace when people simply don't do their job properly, or when (in my opinion) they advise off the top of their head, based on their own offensive notions about who "should" be entitled to funding, rather than what the legal regulations actually say.
There is a xenophobic streak a mile wide in this country, sadly.