Railway managers face an inquiry into whether they are up to the job after bungled engineering work caused misery for commuters over Christmas and New Year.

Transport Secretary Ruth Kelly yesterday said senior managers at Network Rail could lose their bonuses, costing them hundreds of thousands of pounds.

The inquiry was sparked by disruption on the West Coast Main Line, which runs from London to Scotland via Birmingham.

Rugby junction was effectively put out of action when engineering work overran by three days, resulting in delays and bus journeys for 60,000 passengers a day.

Upgrades at Liverpool Street Station in London also took longer than expected, further adding to the chaos on the rail network.

The Office of the Rail Regulator has already announced an investigation into what went wrong over Christmas. But speaking in the Commons, Ms Kelly announced it was expanding the inquiry to consider whether Network Rail and its managers were capable of running Britain's rail infrastructure at all.

She said: "The rail regulator will broaden his investigation to look not just at the West Coast Main Line engineering upgrading work, but also whether there is evidence this was a systemic problem that needed to be addressed in the managing of engineering works, and also whether lessons have been addressed from the management of previous episodes."

She added: "If the results of the investigation suggests that Network Rail is currently in breach of its licence, or has been in breach of its licence, or indeed is likely to be in breach of its licence in the future, that would need to be taken into account in setting bonus payments."

It was confirmed in November that Network Rail's four senior managers had received £286,000 in bonuses, which had been suspended following an accident in Cumbria earlier in the year.

Network Rail's annual report disclosed that an extra £362,000 in longer term performance incentives had also been paid out - and the pay of non executive directors of Network Rail shot up by 18 per cent last year.

Conservative shadow Transport Secretary Theresa Villiers demanded that managers pay the price for Network Rail's incompetence.

She said: "While taxpayers and passengers pay the price of failure at Network Rail, its managers still receive their high salaries and their bonuses."

She added: "It was, of course, a matter of huge irony that on the very day Virgin Trains took out advertisements, warning passengers of the expected disruption, those same newspapers were carrying news of the knighthood the Government had just awarded to the chairman of Network Rail for his services to transport.

"The fundamental problem to address is that Network Rail's management is not properly accountable to anyone. We believe this has to change."

The inquiry was welcomed by West Midland MPs including Gisela Stuart (Lab Birmingham Edgbaston): "What happened over Christmas was totally unacceptable. We need to find out if it is a result of a general failure within Network Rail."

Jim Cunningham (Lab Coventry South): "I appreciate and welcome the fact that there is going to be an investigation into this, particularly what happened at Rugby."

In the same Commons debate, the Transport Secretary also said Birmingham could get a new rail line.

She said: "I retain an open mind whether or not we need for example to re-open a disused rail line between London and Birmingham, whether we should have a high speed rail link which links London to Birmingham, or even beyond to Manchester or so forth, or indeed whether other modes of transport should be encouraged such as roads."

No decisions would be made until 2014 but options were being looked at, she said.