By Kylie MacLellan and William James
LONDON (Reuters) - Britain's last-minute scramble to shape its exit from the EU, its biggest policy upheaval in half a century, hit the rocks on Thursday as Prime Minister Theresa May and opposition Labour leader Jeremy Corbyn dug in their heels for competing visions.
After May's two-year attempt to forge an amicable divorce with an independent trade policy was crushed by parliament in the biggest defeat for a British leader in modern history, May asked party leaders to forget self-interest to find a solution.
Yet there was little sign on Thursday that either of the two major parties -- which together hold 88 percent of the 650 seats in parliament -- were prepared to compromise on key demands.
Corbyn said May had sent Britain hurtling toward the cliff edge of a sudden exit on March 29 with no transition period, and urged her to ditch her "red lines". But he repeated his own condition for talks: a pledge to block a no-deal Brexit.
"The government confirmed that she would not take 'no-deal' off the table," Corbyn said in a speech in Hastings, scene of a battle in 1066 that ushered in the Norman conquest of England.
"So I say to the prime minister again: I am quite happy to talk, but the starting point for any talks about Brexit must be that the threat of a disastrous no-deal outcome is ruled out."
But the further May moves toward softening Brexit, the more she alienates dedicated Brexit supporters in her own Conservative party who think the threat of a no-deal exit is a crucial bargaining chip and should anyway not be feared.
May's spokeswoman said the prime minister had held "constructive" talks on Thursday with lawmakers, including some from Labour, to explore ways of winning support for her deal.
If she fails to forge consensus, the world's fifth-largest economy will drop out of the European Union on March 29 without a deal or will be forced to delay Brexit, possibly holding a national election or even another referendum.
Corbyn said that, under certain conditions, he would look at options including another referendum -- a remark that increased expectations in financial markets that the political chaos would ultimately delay or even stop Brexit.
But a second referendum would take a year to organize, according to official government guidance shown to lawmakers on Wednesday, a source in May's office said.
DEAL BY PARLIAMENT?
Corbyn wants May to call another election, something she has refused, having lost her parliamentary majority in a snap poll in 2017 that left her reliant on the support of a small Northern Irish pro-Brexit party.
She has also repeatedly said another referendum would corrode faith in democracy among the 17.4 million people who voted to leave the EU in 2016. Her spokesman said Britain had not raised the idea of delaying Britain's exit with the EU.
As the United Kingdom tumbles toward its biggest political and economic shift since World War Two, other members of the European Union have offered to talk.
"We will do everything we can so that Britain exits with, and not without, an agreement," German Foreign Minister Heiko Maas told Berlin's lower house of parliament.
The EU's chief negotiator, Michel Barnier said the bloc was open to the possibility of a "more ambitious" Brexit deal than May's rejected agreement, which he said could not be improved on under the principles she had originally set out.
But they can do little until London decides what it wants.
Ever since the UK voted by 52-48 percent to leave the EU in June 2016, British politicians have failed to find agreement on how or even whether to leave the EU. If there is a solution to the riddle, it may be for parliament's backbenchers to find it.
May will on Monday put forward a motion in parliament on her proposed next steps. Over the following week, lawmakers will be able to propose alternatives.
On Jan. 29, they will debate these plans, and voting on them should indicate whether any of them could get majority support.
If a way forward emerges, May could then go back to the EU and seek changes to her deal. Parliament would still need to vote on any new agreement, and it is not clear when that might happen.
Labour says it would back a deal with a permanent customs union with the EU -- which would resolve the intractable problem of managing the land border between Northern Ireland and the Irish Republic -- as well as a close relationship with its single market and greater protections for workers and consumers.
Most Conservative lawmakers reject a customs union because it would prevent Britain having an independent trade policy -- one of their main demands.
Without any deal, trade with the EU would default to basic World Trade Organization rules -- a worrying prospect for manufacturers dependent on smooth, uncomplicated supply lines.
Company chiefs are aghast at the political crisis over Brexit and say it has already damaged Britain's reputation as Europe's pre-eminent destination for foreign investment.
From Channel Tunnel operator Eurotunnel to Scottish whisky distillers, firms have called for urgent and decisive government action and warned of the consequences of a no-deal Brexit.
"If anybody believes that you can just go ahead without some sort of an agreement here, I think that that is reckless," said John Bason, finance chief of Associated British Foods (L:ABF), a food and retail group with annual sales of over $20 billion.