The first thing you need to find out is which mobile phone provider has the best coverage in your area. Ask family and friends for this and also look at the coverage maps provided on each networks website. Once you have an idea of the best 1 or 2 networks have a look at their 'Sim Only' deals and decide which one is the best for you.
In terms of smartphones that are good for under £150. The Samsung Galaxy Ace, Sony Erricson Live and HTC Wildfire S are probably the three best in that category. If you can afford to go up to £170/£180, look at the Samsung Galaxy W. I'd recommend going into a mobile phone store and just playing around with the phones above to see which one you like the best.
Once you know which phone and which network you want to go for, compare the cost of the phone + Sim Only with a contract from the same network. Work out which one is cheaper and go for it when you're ready.
Just make sure the deal suits you. E.g if you think you'd use the internet a lot, make sure the deal has at least 500mb of data. (Three and t-mobile are the only providers who do unlimited data). And make sure you have enough minutes and texts as well. (many providers claim unlimited texts but it is capped at around 3000, doubt most people will ever do that in a month though).
If Three is the best in your area, they do the best sim only deals followed by T-Mobile + Orange. Vodafone and o2 can be quite expensive. If o2 is the best, i'd recommend giff gaff, they use o2's network but because they're a small company they are very cheap and provide the best deals for mins, texts, data on a pay as you go option.