i used my old iphone with o2 pay and go and it worked out pretty well. i have a pay and go tariff called talk anytime. when i top up £10, i get 50 anytime mins. i hardly ever used more than the 50 mins per month and i topped up every month so i could pay for the £7.50 internet bolt on. now those 50 free anytime mins make all the difference to pay and go being viable for me. whereas with the new pay and go tariffs, i'll only get off-peak mins. so i'll actually be paying for daytime minutes. and at 25p per minute for the first two mins.
Are you in one place mainly during the day? Favourite place might work out cheaper for you.