This verse is actually in response to accusations by the hypocrites. Please watch the following video from 25:00 till the end for more explanation:

https://youtu.be/KhOBRAUCa-I?t=1500

“… certain things are attributed to God also because He is the first cause and nothing can originate or materialize without His will and certain things are attributed to us because at times we become worthy of them. The Quran thus says:

وَإِن تُصِبْهُمْ حَسَنَةٌ يَقُولُواْ هَـذِهِ مِنْ عِندِ اللّهِ وَإِن تُصِبْهُمْ سَيِّئَةٌ يَقُولُواْ هَـذِهِ مِنْ عِندِكَ قُلْ كُلًّ مِّنْ عِندِ اللّهِ فَمَا لِهَـؤُلاء الْقَوْمِ لاَ يَكَادُونَ يَفْقَهُونَ حَدِيثًا مَّا أَصَابَكَ مِنْ حَسَنَةٍ فَمِنَ اللّهِ وَمَا أَصَابَكَ مِن سَيِّئَةٍ فَمِن نَّفْسِكَ وَأَرْسَلْنَاكَ لِلنَّاسِ رَسُولاً وَكَفَى بِاللّهِ شَهِيدًا (٤: ٧٨-٧٩)

And if they receive any benefit, they say: “This is from God.” But when evil befalls them, they say: “This was because of you.” Tell them: “Everything is from God!” What has come over these men that they are not prepared to understand a word? Whatever good befalls you is from God and whatever affliction comes your way is because of your own selves and O Prophet! We have sent you forth as a Messenger and sufficient is God’s testimony [on this]. (4:78-79)

While explaining these verses, Imam Amin Ahsan Islahi writes:

… “first those people are addressed who were attributing their successes to God and failures to the Prophet (sws). They are told that the actual reality is that both good and evil manifest with the will of God; without His consent nothing can come into being. The difference, however, is that good comes into being as a requisite of God’s mercy and evil comes into being because of man’s deeds. Viewed thus, evil is related to one’s own self.

Here one must keep this in consideration that God is an embodiment of good. He has created this world as a manifestation of His mercy. Hence to ascribe any evil to Him is against His noble attributes. Evil comes into being because of person’s ill-use of his free-will. The Almighty has granted a person a certain sphere in which he has the freedom to exercise his will. This freedom is a great favour of the Almighty. It is on its basis that man occupies pre-eminence among other creations. It is on its basis that in the Hereafter, he will be held accountable and rewarded or punished accordingly. In the absence of this freedom, there would have been no difference between a human being and an animal. However, one thing that needs to be kept in consideration regarding this freedom is that it is not unlimited and unrestricted; as referred to before, this freedom is restricted to a certain sphere; and then, within this sphere too, it is subservient to the will and wisdom of the Almighty. Without His will and permission, a person cannot fulfill any of his will and intentions. Good intentions also materialize because of His grace and bad intentions also materialize because of the respite He grants. If the Almighty allows a certain evil intent to materialize, then this is attributed to God because it materialized because of His will and consent; however, from another angle it is an act of a human being because it was a product of his will.

What must further be understood is that whenever the Almighty allows the evil of a person or a group of persons to become rampant in a society then this is because, at a collective level, some benefit or well-being of His creation is intended. At certain instances, giving such opportunity to evil to make hey is to test the righteous so that their weaknesses are done away with and their qualities are polished. At certain other instances, the reason is to leave the wicked with no excuse to deny the truth and to bring to an end their period of respite. At still other instances, the Almighty creates circumstances so that what is hidden in the nature of people is revealed. Thus not only righteous deeds emanate from them as a result but evil deeds also emanate from people who have them hidden in themselves“. (Amin Ahsan Islahi, Tadabbur-i-Qur’an, 2nd ed., vol. 2 (Lahore: Faran Foundation, 1986), 344).

For further details, please refer to the video below from 3:41 to 33:41 and from 1:52:38 to 1:55:41