Customs officals stop people flooding the market with goods that would otherwise be charged with duty. Getting rid of them would mean that the tax man would get less money because nobody would buy booze and fags the legal way and therefore income tax would go up.
This is what loosehead was saying. In effect the government have a big pot of cash which is made up of income tax, duty, vat etc. This pot needs to be say �100, remove the �20 they get from fag money would mean that something else would go up to compensate.