IPhone orginal to iPhone 3G o2 upgrade, what are the options?

Im on the o2 tariff, my contract runs out in a month or so. I want to upgrade but only want the �35 p/m tarriff like im on now, will i still have to pay for the handset as if i were a bran new customer (if thats the case definetley not upgrading!). If i keep my handset should my tarriff decrease because part of the �35 p/m was for apple originally???