Like others, I was paying O2 £30 a month for 500 mins and 600 texts and whatever the standard Internet usage was, but when my old handset died last year I decided to buy a 4S outright from Apple and switch to pay as you go.
I chose a 30 day rolling plan with T-Mobile for £15 a month. For that I get 330 mins, unlimited texts and I think either 500 or 750 MB Internet.
Even though the phone was expensive to buy upfront, it's definitely cheaper over 18 months to 2 years (which seems to be the standard length if most contracts) plus with the 30 day rolling plan can get out of it easily enough if I ever have any issues with signal strength etc