Just been looking for an Iphone 6 on the VM page . They are charging £816 for an "interest free" Iphone 64GB, the Apple store charge £619 . Hardly interest free! £203 over charge must work about a 28% APR Apples store rate is about 15% APR.
I think the reason for this is they adjust the handset value to be in line with/competitive within the rival companies standard contract rates.
If they charged £619 for the phone and you say selected a £5 tariff from their airtime range, it would be vastly under the going rate for that handset on a contract. It would appear as though their 'airtime' tariffs are standard across the range so these don't change, so they adjust the handset value to suit.
I believe VM are going down the line of separating handset and tariff. Which saves the grief that you normally get at the end of a 24 month deal where they (any ISP) continue taking the full contract price even after the 24 month period has elapsed.
Tesco Mobile do a similar deal but their true cost of the phone is £672 though their tariffs start at £15 . A lot nearer to the retail price of £619
I don't think anyone would have a top of the range smart phone with a 250 mb allowance (£5)